2021/129 “Who is the Winner? Comprehending Thailand’s 1 October 2021 Military Reshuffle” by Paul Chambers
EXECUTIVE SUMMARY
- Thailand’s recent annual military reshuffle was heavily influenced by military-academy class ties and other forms of factionalism.
- Prime Minister Prayut Chan-ocha and Deputy Prime Minister Prawit Wongsuwan appointed most of their favourites to senior posts in the Army.
- The crown appointed its own favourites to command the Air Force and Navy while ensuring that its trusted Army Commander remained in place.
- The reshuffle indicates that control over the Thai military is becoming increasingly bifurcated between these two powerful groups: the crown on one side and officers of the Army’s “Burapha Phayak” faction who seized power in the May 2014 coup on the other.
* Guest writer, Paul Chambers, is Lecturer and Special Advisor for International Affairs, Center of ASEAN Community Studies, Naresuan University, Thailand. In March-May 2021, he was Visiting Fellow in the Thailand Studies Programme of the ISEAS – Yusof Ishak Institute.
INTRODUCTION
In 2021, the winds of both continuity and change in the distribution of power among Thai military personalities were once again evident in the annual 1 October armed forces reshuffles. There were 771 promotions, involving 21 female officers, and 563 promotions in rank, including 38 females. There were appointments involving 587 generals, while 314 colonels or colonel-equivalent officers were promoted to the rank of major general or its equivalent.[1] It was thus another year of top-heavy promotions to flag rank for the Thai military.[2]
CLASS TIES AND FACTIONS
As usual, the appointments and promotions reflect both performance and pre-cadet academy linkages, as well as factional ties and favouritism. The class ties in question are based not only on shared educational experiences in the academies of the Army, Navy, Air Force, police and beyond but also, and even more importantly, on ties forged in Thailand’s pre-cadet school, the Armed Forces Academies Preparatory School. Factional linkages involve shared group interests or objectives characterized, for example, by service in a given military unit. The most influential Army faction has traditionally been the Wongthewan or “Divine Progeny” faction, rooted in the King’s Guard unit. It is Thailand’s oldest military faction, lording over the Army from 1870 until 1978. The current king himself is a member of this faction. The second most powerful has been the Burapha Phayak or “Eastern Tigers”, representing the Second Infantry (and Cavalry) Division. This faction’s core of power has been in a sub-faction, grounded in the 21st Infantry Regiment, known as the Thahan Suea Ratchinee or Queen’s Tiger Guards. The Eastern Tigers were the dominant Thai Army faction from 2007 until 2016. They are the faction of Prime Minister and Defence Minister General Prayut Chan-ocha, Deputy Prime Minister General Prawit Wongsuwan and Interior Minister General Anupong Paochinda. Among its members, Prawit is especially powerful. Other Army factions include the Cavalry, Special Forces (Muak Daeng or Red Berets), and the 9th Infantry Division (Suea Dam or Black Panthers). In 2018, King Vajiralongkorn also created the Kho Daeng or Red Rim group, whose members attend special short-term military training under palace auspices. Only Red Rim officers can now ascend to Army or Supreme Command positions, and the group has become a means for the palace to influence the military.[3]
THE MILITARY AND POLICE RESHUFFLE
In 2021, members of pre-cadet Class 20 are Thailand’s eldest active-duty officers. This factor makes that class quite important. That it is also the class of retired General Apirat Kongsompong, the senior-most official with his foot in the doors of both the palace and the Army only adds to that importance. Apirat, also a member of the Wongthewan faction, served as Army Commander in 2018-2020. Immediately after his retirement, the king named him Deputy Secretary of the Royal Household. Though Apirat works formally under Air Chief Marshal Sathitpong Sukvimol, the Secretary of the Royal Household, the Air Force is a smaller security force than the Army. Its officers’ clout cannot compare to those in the latter service.
Only a few Wongthewan members of pre-cadet Class 20 remain on active duty. These include Apirat’s man General Worakiat Ratanond, whom this year’s reshuffle moves from Army Chief of Staff to the post of Permanent Secretary of the Ministry of Defense. He retires in 2022. Another active-duty member of pre-cadet Class 20 is incoming Navy Commander Admiral Somprasong Nilmasai, who also retires in 2022. Like his predecessor Admiral Chatchai Sriworakan, Somprasong is part of a Navy faction influenced by former Navy Commander Admiral Luechai Ruddit (2018-2020). Luechai’s personalistic clout emanates from his older brother General Kamnat Ruddit, a Wongthewan Army officer who has sat on the Privy Council since 2016. Ruddit’s influence has allowed the Navy to enhance its political clout within the military to a level greater than at any time since the early 1950s. Nevertheless, many in the Navy are furious at Somprasong’s appointment because he was seen as having obtained the command post externally; he moved from the position of Deputy Permanent Secretary of the Ministry of Defense with the support of outgoing Permanent Secretary, Burapha Phayak faction member, Prawit loyalist, and fellow pre-cadet Class 20 member General Nat Intracharoen. Even Navy Commander Admiral Chatchai tried to fill the command post with an alternative officer: his chum Admiral Teerawat Kanchana, who is a member of pre-cadet Class 21 and currently serves as Navy Chief of Staff. However, Chatchai has instead been promoted to the post of Navy Deputy Commander.[4] Yet another member of pre-cadet Class 20 is Police Commissioner Police General Suwat Jaengyodsuk. Suwat, who retires in 2022; he is close to fellow pre-cadet Class 20 and police academy Class 36 graduate, former Police Commissioner ret. Police General Chakthip Chaijinda. The latter is now a Bangkok gubernatorial candidate. Suwat, like Chakthip and Apirat, is closely connected to the palace; he was an aide to the current king and is a former commander of the Special Service Division, a unit renamed in 2019 as the Rachawallop Police Retainers, King’s Guard 904. Suwat also maintains a deep connection to the Navy since his younger brother Admiral Suwin Jaengyodsuk, a member of (pre-cadet Class 25), is the Chief of the Naval Staff and was promoted this year to become Commander in Chief of the Naval Fleet. Suwin could eventually become Navy Commander, as he is not due to retire until 2025.
Given Suwat’s impending 2022 mandatory retirement, the most significant police appointments in the 2021 reshuffle are the promotion of Police General Torsak Sukvimol from Commander of the Central Investigative Bureau to the post of Assistant Police Commissioner and the promotion of Jirapop Puridej from Deputy Commander to Commander in that same bureau. Jirapop is following in the footsteps of Torsak, and the two officers’ promotions are noteworthy because their families are very close to the palace. Torsak’s elder brother is Air Chief Marshal Sathitpong Sukvimol (See above.), while Jirapop’s elder brother is Jakrapop Puridej. (See below.). Torsak, who retires in 2024, could succeed Suwat as Police Chief next year, while Jirapop will have a much longer career. As a member of pre-cadet Class 34, he retires only in 2036.
With the 2021 reshuffle, the five “tigers” of the security services (See Table 1.) are all highly trusted by the palace. Despite holding a relatively ceremonial post, the Commander of the Armed Forces continues to be General Chalermpol Srisawasdi, a member of pre-cadet Class 21, while the commander of the all-powerful Army remains General Narongphan Jitkaewthae, a member of pre-cadet Class 22. Both are Red Rim officers who have two more years before retirement in October 2023 — at most months after the next general election, if the current Prayut government finishes its four-year term. This is important because if, by chance, a new government comes to office, Prayut and Prawit will no longer have influence over the appointments of Chalermpol’s and Narongphan’s successors. The three remaining “tigers” also have close palace links. The Navy and Air Force Commanders are newly appointed, but they must retire next year. Newly appointed Air Force Commander Air Chief Marshal Napadej Dhupatemiya, an F-5 and F-16 pilot, is the son of an officer who was not only close to General Apirat’s father but also a favourite of Thailand’s then-crown prince and now king. Prapan Tupatamee served as Air Force Commander in 1983-1987.[5]
Table 2 highlights appointments in the headquarters of the Armed Forces itself resulting from the 2021 reshuffle. General Chalermpol Srisawasdi has obtained cushy postings for his close pre-cadet classmates from Class 21, and for fellow members of the Army’s Burapha Phayak Cavalry faction. First, General Supachok Thawatchapirachai, a member of pre-cadet Class21), was promoted from the post of Deputy Director of the Office of Missions for Security Maintenance in the Army to become Deputy Commander of the Armed Forces. Second, General Naren Siripuban, also of pre-cadet Class 21, was promoted from the post of Commander of the Army Development Command to be another Deputy Commander of the Armed Forces. Third, General Nattapol Boon-ngam, a third pre-cadet 21 classmate and friend of General Chalermpol, was promoted from Special Advisor to the Office of the Defence Permanent Secretary to become Chief of the Armed Forces Joint Staff. Fourth, General Thanet Wongcha-um, pre-cadet Class 21 chum of General Chalermpol, and the outgoing Commander of the 2nd Army Region, was promoted to Deputy Chief of Staff of the Armed Forces. Like General Chalermpol, Thanet is in the Cavalry faction of the Army.
Chalermpol did make some bargains. Admiral Songwit Boon-intorn, a member of pre-cadet Class 22 and a chum of Army Commander General Narongphan Jitkaewthae was promoted from the post of Assistant Navy Commander to become yet another Armed Forces Deputy Commander.
These five well-connected senior recruits join Air Chief Marshal Sutipan Thaitong, still another pre-cadet school classmate of General Chalermpol who is already serving as an Armed Forces Deputy Commander, to round out the five senior-most officers in the Armed Forces headquarters.[6] Meanwhile, General Suwit Ketsiri, Commander of the International Counter-Terrorism Operations Center, was promoted to become the director of the Royal Coordination Center for Competence and Security. Suwit, a member of pre-cadet Class 23, is a Burapha Phayak cavalryman close to Armed Forces Commander General Chalermpol. He retires in 2025, and Chalermpol is rumored to be pushing to promote Suwit as his successor as Supreme Commander.
Thailand’s 2021 reshuffle suggests that the Wongthewan and Red Rim factions of the Army remain powerful, not least because of General Narongphan’s continuing posting as Army Commander. Nevertheless, the year has seen push-back from the Prawit’s and Prayut’s Burapha Phayak. Two members of that faction have moved into top Army posts. (See Table 3). These officers are incoming Army Chief of Staff General Santipong Tampiya and General Jaroenchai Hintao. The latter officer is a member of pre-cadet Class 23 who moves from the strategic post of Commander of the First Army Region to become Assistant Army Commander. But the former officer is, like incoming Army Deputy Commander and Wongthewan faction member General Apinan Khampeo, a member of pre-cadet Class 22. Santipong and Apinan are Class 22 chums of Army Commander Narongphan, and both will retire in 2022. Apinan is especially important because the Deputy Army Commander exercises effective control over Thailand’s Center for the COVID-19 Situation Administration. General Bhumipat Jansawang, a member of pre-cadet Class 24 who previously served as Special Forces Commander and is a member of the Muak Daeng faction, will become an Assistant Army Commander. General Bhumipat is a protégé of former Army Commanders and current Privy Councilors General Surayud Chulanond and General Chalermchai Sitisard. He is due to retire in 2023. Barring unexpected promotions in 2022, General Jaroenchai is on track to succeed General Narongphan as Army Commander upon the latter’s retirement in 2023; he himself is due to retire the following year).[8] This is relevant because it would mean that Burapha Phayak once again hold the post of Army Commander for the first time since 2016. This development would effectively tilt power in the Army power back toward Prawit and Prayut.
The Thai Army’s First Region is crucial for its role in protecting the capital. Its officers have traditionally been tasked to guard Bangkok and Central Thailand. At the same time, it is important to choose officers to serve in that command who are loyal to the palace, and to Thailand’s revolving governments, to prevent coups by these supposed guardians. The incoming First Army Region Commander is General Jaroenchai’s pre-cadet classmate and fellow Burapha Phayak faction friend General Suksan Nongbualuang. In his new post, General Suksan will work with Police Commissioner Suwat to lead in implementing security measures taken to check demonstrators in Bangkok. He has followed in the footsteps of Jaroenchai, becoming First Army Region Cohort Commander last year, the Number 2 position in a Thai Army region, and, as he is due to return only in 2025, General Suksan could also succeed Jaroenchai at the very top of the Thai military if Jaroenchai served as Army Commander during 2023-2024. The incoming Cohort Commander General Tarapong Malakam, of pre-cadet Class 24, moves up from being a Deputy Commander of the First Army Region. He is also a Burapha Phayak faction member and were he to follow in the promotion footsteps of Jaroenchai and Suksan to become Army Commander, he could keep that post in the faction’s hands. General Tarapong is due to return in 2026.[9] Another Deputy Army Commander, General Kantapot Setarasamee, hails from the Burapha Phayak Cavalry. He is in line to eventually succeed General Suwit Ketsiri, General Chalermpol’s probable successor, as Armed Forces Commander. The same is true for Kantapot’s successor as 2nd Cavalry Division Commander, General Udom Gaewmaha. The common thread among all four of these is that they have held General Udom’s current posting. The only Wongthewan officer holding a top post in the First Army Region is incoming General Pana Klaewblaudtuk, an incoming First Army Deputy Commander. But, as a member of pre-cadet Class 26, he is still rather junior. General Pana was previously the commander of the 11th Infantry Regiment, tasked with handling the US-supplied Stryker armoured vehicles.[10] The third First Army Deputy Commander, General Takat Laudsiri, is not from a currently significant faction.
The 2021 reshuffle has also seen another chapter in the continuing saga of royal favourite General Songwit Noonpakdee, a Wongthewan officer and member of pre-cadet Class 24. Once a Commander of the 1st Infantry Division and a Deputy Commander of the First Army Region, he seemed destined because of his training, experience, royal favour and famous surname as the son of former Army Commander General Issarapong Noonpakdee to sail toward the post of Army Commander. But in 2020 Songwit was promoted to be a mere Deputy Chief of Staff of the Army. In the 2021 reshuffle, he has been demoted to a regular command staff officer post in the Army; his new position is Head, Army Corps Office of Chief of Staff Supervision. Songwit’s setback may be in keeping with the tradition in the Thai military that officers who obtain their educations abroad do not become service commanders; he is a graduate of the Virginia Military Institute in the United States rather than of Thailand’s Chulachomklao Military Academy. Nevertheless, his family’s close connections with the palace may in the end offset common practice. Songwit retires in 2025. If the king and the Wongthewan faction apply enough pressure, he could find himself moving up next year. He might also have a chance to become Armed Forces Commander after Chalermpol’s retirement.[11]
Table 5 lists a number of other recent appointments of significance. The cabinet promoted General Supot Malaneeyom, a member of pre-cadet Class 22), from his post as Chief of Staff of the Armed Forces to become the Secretary-General of the National Security Council. Supot is from the Cavalry faction and is a confidant of General Chalermpol. He is also close to Army Commander General Narongphan Jitkaewthae, his fellow member of pre-cadet Class 22. Supot retires in 2023. Meanwhile, General Nattawut Nakanakorn becomes the new Special Forces Commander. Like his predecessor, General Bhumipat Jansawong, he belongs to pre-cadet Class 24, but he is due to retire only in 2025. Further, and like Bhumipat, Nattawut is close to Privy Councilors General Surayud and General Chalermchai. If he follows in Bhumipat’s footsteps in being promoted to Assistant Army Commander or Army Chief of Staff in 2022, Nattawut could challenge General Jaroenchai Hintao in the race to succeed General Narongphan as Army Commander in 2023.[12] Though the commanders of the Second, Third and Fourth Army Regions are extremely powerful figures in the provincial settings for which they are responsible, they only rarely ascend to become Army or Armed Forces commanders. The current officers in those posts will be no exception. Incoming Second Army Region Commander General Sawarat Saengpol is a member of the Surasak Montree Taskforce faction.[13] Third Army Chief General Apichet Suasa-ad is close to former Army Commander General Apirat Kongsompong. And Fourth Army Region Commander General Kriangkrai Srirak, a Wongthewan faction member, has reportedly made Bangkok proud in leading counter-insurgency efforts in Thailand’s Deep South counterinsurgency; he may have a bright future. General Amrit Boonsuya, commander of the 2nd Infantry Division, has a good chance of eventually ascending to become Army chief since his current posting puts him at the centre of the Burapha Phayak faction’s power base.
Thailand’s 1st Infantry Division, the core of the Wongthewan faction’s power base, is ostensibly under the command of the 1st Army Region. However, in October 2019, its 1st and 11th regiments were placed directly under palace control. The 1st division was basically hollowed out to help create the new Royal Security Command (RSC) established in 2017 as a regal mechanism. The amalgamation of these regiments under the personal control of the king occurred while other units stationed outside of Bangkok were not placed under direct palace control; the remaining regiment of the 1st Infantry Division regiment, the 31st Regiment, is stationed in Lopburi. Then, on 28 August 2021, General Songpol Sadsaongern, a member of pre-cadet Class 27, was promoted from being the commander of the 1st Division, First Army Region, to become the Head of General Operations, Office of the Deputy Commander, Royal Security Command.[14] General Songpol and other RSC officials work under RSC Deputy Commander General (and Air Chief Marshal) Jakrapop Puridej, a member of pre-cadet Class 28 who retires in 2029). General Songpol’s replacement as 1st Division Commander is Colonel Worayot Luangsuwan, a member of pre-cadet Class 28. That officer was previously the Deputy Commander of the 1st Division. General Songpol’s appointment tells us that the monarch is taking regular Army officers to create a parallel and palace-controlled command structure.
CONCLUSION
The results of Thailand’s 2021 military reshuffle suggest that supremacy over the country’s armed forces will in future become increasingly bifurcated between the crown on the one hand and Generals Prawit and Prayut, on the other, even though the monarch formally holds sway over his kingdom. The palace is likely eventually to assume direct control over all forces belonging to the 1st Infantry Division and perhaps even other units. The Prawit-influenced 2nd Infantry Division, the Burapha Phayak Infantry and Cavalry, is likely to remain the influential centre from which powerful Army and Armed Forces leaders emerge. However, the position of Army Commander will increasingly become a point of conflict between the two power centres. Until October 2023, the Wongthewan faction will continue to hold that post, thanks to the tenure of General Narongphan. If Prayut is still prime minister at that point, he and Prawit will probably see their military appointment powers enhanced with a continuation of Burapha Phayak’s promotion line. If Prayuth is no long prime minister, more direct monarchical power may extend across Thailand’s armed forces.
ISEAS Perspective 2021/129, 30 September 2021
ENDNOTES
[1] The abundance of generals is especially noteworthy in that the rank of brigadier general no longer exists in Thailand. There are instead two grades of full colonel.
[2] “โปรดเกล้าฯแต่งตั้งทหาร 771 ราย ‘พล.ร.อ.สมประสงค์’ ผบ.ทร.-‘พล.อ.อ.นภาเดช’ ผบ.ทอ.” [His Highness appoints 771 soldiers, from Navy Commander Admiral Somprasong to Air Force Commander to Air Force Commander Air Chief Marshal Napadej], Isra News Agency, 14 September 2021 (https://www.isranews.org/article/isranews-news/102473-isranew-newss.html).
[3] Paul Chambers, “‘Red Rim Soldiers’: The Changing Leadership of Thailand’s Military in 2020”, New Mandala, 21 September 2020 (https://www.newmandala.org/the-changing-leadership-of-thailands-military-in-2020/).
[4] “ไขรหัสลับ ‘บิ๊กอุ้ย’ ฝ่าคลื่นลม ดัน ‘บิ๊กโต้ง’ ผงาด ผบ.ทร.” [Decoding “Big Oui’s” Attempts to Push through the Wind “Big Tong” to become Navy Commander], Thai Rat, 26 August 2021 (https://www.thairath.co.th/news/politic/2177030)
[5] Wassana Nanuam, “และแล้ว Snowy ก็โปรยปราย ณ ทุ่งดอนเมือง” “[And Then Snow Scattered at Don Mueang Field],” Lop Luang Lang Channel, 30 August 2021 (https://www.llpch.news/2021/08/30/74323/).
[6] Wassana Nanuam, “‘บิ๊กแก้ว จัดทัพไทย เพื่อน ตท.21 พรึ่บ! 2 ทหารม้า ‘เสธ.โจ้’ นั่ง เสธ.ทหาร ‘บิ๊กแขก’ รอง ผบ.สูงสุด” [“Big Kaew” quickly organizes the Thai armed forces with pre-cadet 21 class friends, two cavalrymen, “Se.Jo” sits as Chief of Staff, “Big Khaek” as Deputy Commander in Chief], Lop Luang Lang Channel, 14 September 2021 (https://www.llpch.news/2021/09/14/74516/).
[7] Note that General Supachok helped lead the 2018 rescue of a boys soccer team trapped in a cave in Chiang Rai Province.
[8] “โผทหาร คลอด 771 นาย ‘บิ๊กหน่อย-บิ๊กเฒ่า-บิ๊กป้อง’ นั่งปลัด กห. ผบ.ทร. ผบ.ทอ.” [771 Officers Endorsed: “Big Noi-Big Thaow-Big Pawng” sitting as Permanent Minister of Defense, Navy Commander, Air Force Commander], Thai Post, 14 September 2021 (https://www.thaipost.net/main/detail/116724).
[9] “‘บิ๊กบี้’ เขย่าโผ ทบ. ปรับแนวรบ 4 เสือ สายตรงคอแดง ผงาดคุมทัพภาค 1” [“Big Bee” shakes up the military officers: The Royal Thai Army Adjusts Four Tigers’ front, the Red Rims increasingly take control of Army Region 1], Thai Rat, 2 September 2021 (https://www.thairath.co.th/news/politic/2182936).
[10] Pana was succeeded as 11th Regiment Commander by General Thawatchai Tangphittakul, an Apirat “son”, who is also a Wongthewan faction member and Stryker specialist. General Thawatchai retires in 2029 and could eventually become Army Commander.
[11] “ศึกคอแดง ภาค 2 เดิมพัน ‘ทรงวิทย์’ อำลา ‘ทรงพล’ ตท. 27 ระส่ำ ฉลามเฒ่า ฮึด! คืนถิ่น กับตำนานเพื่อนรัก ณ ทุ่งดอนเมือง” [Red Rims Clash, part 2, Bet on “Songwit”, bid farewell to “Songpol”, Pre-Cadet Class 27, angry old shark fierce! Return territory with the legend of a best friend at Don Mueang Airfield report] Matichon Update (Today Line Me), 30 August 2021 ( https://today.line.me/th/v2/article/DnNJ85).
[12] “จับตาหมาก ‘หมวกแดง’ บนกระดาน ทบ. เบรกศึก ‘คอแดง-คอเขียว’ ดาวเด่นรบพิเศษเข้าไลน์ ไร้ปาฏิหาริย์ ‘บิ๊กอ๊อบ’ กับแผง ตท. 21 แห่งทัพไทย” [Keep an eye out for the “Red Rims” in the Royal Thai Army board, breaking the battle between “Red Rims-Green Rims”, a special star enters the line-up. Without a miracle, “Big Ob” will have problems before the army pre-cadet Class 21 panel], Matichon Weekly, 13 September 2021 (https://www.matichonweekly.com/column/article_462979).
[13] The Surasak Montree Taskforce, an Army unit representing the Internal Security Operations Command, commands police and other security forces in the provinces of Thailand’s Northeast. It works particularly in the areas of border security and narcotics suppression. Its officers usually move up to Second Army Region command positions.
[14] “ราชกิจจาฯ เผยแพร่ประกาศแต่งตั้ง ‘ข้าราชการในพระองค์’” [Royal Gazette Publishes an Announcement of the Appointment of “Royal Official”], Krungthep Thurakit, 27 August 2021 (https://www.bangkokbiznews.com/news/detail/957095).
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2021/128 “Malaysia’s Regulatory Framework: A Catalyst for FinTech Adoption” by Nafis Alam
EXECUTIVE SUMMARY
- Measures to fight the Covid19 pandemic have accelerated Financial Technology (FinTech) adoption in Malaysia. More than 75% of Malaysia-based businesses are now using at least one FinTech-related product or service since the past year.
- Bank Negara Malaysia’s regulatory sandbox, the Financial Technology Enabler Group (FTEG) and Malaysia Digital Economy Corporation (MDEC) FinTech Booster Programme, have acted as catalysts for FinTech growth.
- FinTech Booster is further driving the digitalisation of SMEs by developing innovative products and services as well as by enhancing FinTech startups’ understanding of market, compliance and regulation requirements.
- The issuance of the Digital Banking Framework by BNM signals an increased focus on democratising access to finance for the unserved and underserved markets.
- The Securities Commission (SC) has allowed alternative finance platforms to operationalise secondary trading, and this is further accelerating the FinTech adoption in the country, mainly amongst the SMEs.
* Guest writer,Nafis Alam, is Head of School of Accounting and Finance at the Asia Pacific University of Technology and Innovation (APU), and Research Affiliate at the Cambridge Centre for Alternative Finance, University of Cambridge. He can be reached at nafis.alam@apu.edu.my or nafis.alam@ccaf.global.
INTRODUCTION
Financial Technology (FinTech) refers to technology, solution or software that enhance, automate, and improve the delivery of financial products and services. FinTech comprises of five major segments, namely, payments, wealth management, insurance, alternative finance and regulation.
The Asia Pacific region has been at the forefront of FinTech growth in the world. According to data from Statista, Asia Pacific (APAC) is the third biggest region for FinTech platforms after North America and EMEA (Europe, Middle East, Africa). In 2020 alone, APAC contributed 4,765 new FinTech startups, a whopping 66 percent jump since 2018.
Apart from regional giants such as India and China, the Southeast Asian (SEA) market has shown a huge potential in FinTech growth. In 2020 alone the combined value of FinTech startups in the SEA was US$150 billion.[1] The region also witnessed a seven-fold increase in investment in FinTech startups since 2015, mainly driven by foreign investors. In 2020 total investment in the region stood at US$1.6 billion.[2]
In Malaysia, national lockdowns due to Covid19 acted as a catalyst for the adoption of FinTech. The Malaysian government’s Movement Control Order (MCO) during the height of the pandemic helped to add 3 million new mobile banking service subscribers in 2020 as well as pushed e-wallet usage and adoption to new highs. Merchants were quick to embrace the trend, with over 400,000 new businesses registering for QR code payment acceptance, a 164% jump from the previous year. Capital raised on Equity-based Crowdfunding platforms jumped more than 457% to RM 127.7 million (USD30.4 million), while P2P/Marketplace Lending value rose over 20% to RM 503.3 million (USD119.8 million).[3]
This essay provides an outline and explains how far Malaysia has come from a humble start (in the FinTech ecosystem) and how the regulatory framework is acting as a catalyst for this leap.
FINTECH ADOPTION WITHIN GOVERNMENT INITIATIVES
Malaysia’s digital shift has been ongoing for the past decade but Covid19 has further accelerated FinTech adoption in the country. Much of the credit goes to Bank Negara Malaysia’s (BNM) initiative to regulate and facilitate the development and adoption of FinTech solutions by introducing a regulatory sandbox framework in 2016.[4] This sandbox has provided a flexible regulatory environment that allows FinTech companies to experiment in a production environment. In fostering technological innovations in financial services, it has contributed to the growth and development of Malaysia’s financial sector. Participation in the sandbox also affected the ability of FinTech to raise capital. One of the graduates of BNM’s sandbox MoneyMatch successfully closed a Series A fundraising[5] round totalling MYR 18.5 million (USD 4.4 million) over two tranches, initially led by Cradle Seed Ventures in 2019 and more recently by KAF Investment Bank, and is now eyeing a digital banking license. Before establishing the regulatory sandbox, in June 2016, BNM established a Financial Technology Enabler Group (FTEG)[6] whose responsibilities included formulating and enhancing regulatory policies to facilitate technological innovations. The FTEG also served as BNM’s dedicated contact point for FinTech-related queries including the adoption of FinTech in the financial services industry.
Apart from BNM’s initiatives, which is expected to provide regulatory guidelines and nurture new startups via regulatory sandbox, the Malaysia Digital Economy Corporation (MDEC) has also played an instrumental role in pushing FinTech adoption in the country by engaging with startups, investors and innovators from around the world. While BNM focused on regulation, MDEC provides investment opportunities, knowledge and awareness of the FinTech ecosystem, and an innovation lab for continuous development. MDEC has partnered with various stakeholders, and one of its initiative is The Orbit, a co-working space that serves local and foreign FinTech players, allowing startups to interact with industry leaders to ease solution development and encourage early market entry. To boost FinTech literacy and serve the ever-growing demand for FinTech talent, MDEC has collaborated with institutes of higher learning to deliver modules and programmes on FinTech. One such higher education provider, Asia Pacific University of Technology and Innovation (APU), became the first university in the country to offer a bachelor degree programme specialising in FinTech and a Master programme in FinTech.[7]
In partnership with the United Nations Capital Development Fund (UNCDF) and BNM, MDEC has also established the Financial Innovation Lab to accelerate innovative solutions in digital financial services that empower the daily lives of low and moderate-income people.[8] This initiative provides grant support ranging from USD10,000 to USD100,000 for new innovative FinTech startups. More recently, in August 2020, MDEC once again in collaboration with BNM, established a capacity-building programme called Fintech Booster.[9] This booster programme aims to assist FinTech startups, both local and foreign in developing their products and services via three strategically crafted modules: Legal & Compliance, Business Model, and Technology.
The Securities Commission (SC) has also been launched by the Malaysia Co-Investment Fund (MYCIF) of RM50 million (US$12.3 million) targeted at capital markets, including companies listed on the Leading Entrepreneur Accelerator Platform (LEAP) Market board (for SMEs).[10] Streamlining licensing requirements for Equity Crowdfunding (ECF), such as raising the funding limit on ECF platforms to RM10 million (US$2.4 million), and allowing ECF and Peer-to-Peer (P2P) platforms to operate secondary trading since last year, further boosted the growth of Fintech startups in the country.[11]
The SC has been spearheading its Digital Agenda for FinTech startups in Digital Investment Management (DIMs) and Digital Asset exchanges (DAX) space to increase the number of startups. In 2020, the SC approved three additional digital investment management (DIM) companies. They provide more value-added options for investors, such as spare change investing and differentiated investment strategies. By end-2020, the DIM companies had acquired 199,224 clients and RM466.20 million in total assets under management (AUM), a significant jump from 23,803 clients with RM74.7 million total AUM at end-2019.[12]
The various initiatives by different stakeholders described above have accelerated FinTech growth in the country. The number of FinTechs in the country increased from a mere 93 in 2017 to 233 in 2020, a whopping 150% jump in four years (Figure 1), while mobile banking transactions more than doubled to MYR460 billion (USD 110Billion) in 2020 from MYR200 billion (USD 48.7 billion) in 2019 (Figure 2).
Under the 2021 Budget, the Malaysian government continues to nurture the P2P lending and ECF eco-system. A RM50 million (US$12.3 million) matching grant for P2P lending and RM30 million (US$7.3 million) matching grant for ECF have been allocated. The government also proposed an extension on stamp duty exemption for Exchange Traded Funds (ETF) which expires December 2020.[13] It is heartening to know that over the last four years, the government has allocated RM 200-250 million per year (USD 48-61 million) for the development of the FinTech ecosystem.
MALAYSIA’S FINTECH REGULATORY FRAMEWORK
Currently, Malaysia does not have a specific regulatory regime applicable to FinTech participants, and the existing regulatory framework generally applicable to the traditional financial services industry applies equally to FinTech startups. The framework includes legislations such as the Financial Services Act 2013 (FSA); the Islamic Financial Services Act 2013 (IFSA); the Money Services Business Act 2011 (MSBA); the Capital Markets and Services Act 2009 (CMSA) as well as the various standards and guidelines issued by BNM and the Securities Commission (SC).
In order for FinTech startups to apply for a regulatory license, an assessment of proposed FinTech activity has to be undertaken to determine whether or not the activity falls under the existing regulatory framework and, if so, what relevant legislation, standard and/or guideline then applies.
In a recent speech[14], Suhaimi Bin Ali, the director of the Financial Development and Innovation Department at BNM indicated that all FinTech startups will be either regulated by BNM or the SC and in some limited cases by joint regulations as shown in Figure 3 and regulated by the FSA, IFSA, MSBA or CMSA. BNM administers the FSA, IFSA and MSBA :
- The FSA sets out the regulatory framework for, among others, the conventional businesses of banking, investment banking, insurance, operating a payment system and issuance of payment instruments;
- The IFSA sets out the regulatory framework for, among others, the Islamic business of banking and takaful operators; and
- The MSBA sets out the regulatory framework for the businesses of money-changing, remittance and wholesale currency.
The CMSA, in turn, is administered and enforced by the SC and regulates, among others, dealings in securities and derivatives, fund management, investment advice and financial planning.
For those FinTechs which fall under BNM’s supervisory scope, there are three broad categories: the License Regime, the Approval Regime and the Registration Regime, with each of these categories requiring FinTechs to follow more or less stringent regulations depending on the risks they may pose on financial and monetary stability, as well as customer protection. For example, startups that pose the highest risks to the financial system such as remittance and money exchange, are more regulated than money brokerage services or insurance adjusters. Regulators provide clear regulatory guidelines targetting customer protection and ensuring the integrity of the system. This is important especially from a customer compensation perspective (ie, how customers should be charged and the accompanying disclosures on the various new products and services). As the concept of freedom of contract is recognised in Malaysia, such compensation models are therefore a matter of contract between the FinTech provider and the customer.
Figure 3: Regulation of FinTech Services by BNM/SC or Joint Regulation
The key pillars and fundamentals behind BNM’s approach to FinTech regulation are underpinned by the three principles of parity, proportionality and neutrality.[15] On parity, the end goal is to “provide a level-playing field for people playing in the same place doing the same thing,” considering the special needs of new entrants and innovators in developing their ideas. On proportionality, regulations must be “proportionate to the benefits provided and the risks posed by the entrants.” Finally, on neutrality, “BNM is committed to prioritizing the desirable outcomes and potential of emerging technologies within the FinTech space, rather than the technology itself.”
To further boost the FinTech scene in the country, BNM has also issued a simplified regulatory framework for digital banks.[16] This framework aims to reduce the regulatory burden for new entrants that have strong value propositions for the development of the Malaysian economy, whilst safeguarding the integrity and stability of the financial system. Key features of the simplified regulatory framework include capital adequacy requirements. This involves the use of risk categories to calculate the credit and market risk components for risk-weighted assets under the Basel II capital framework. In addition, there is also a liquidity requirement: 25% of the digital bank’s on-balance sheet liabilities must be held in high-quality liquid assets. Digital banks will be required to comply with all equivalent regulatory requirements applicable to incumbent banks after the foundational phase.
Following a six-month application period, which ended on 30 June 2021, BNM received 29 applications for a digital bank licence under the Financial Services Act 2013 and the Islamic Financial Services Act 2013.[17] The applications included interest from diverse parties ranging from banks, industry conglomerates, technology firms, e-commerce operators, FinTech players, cooperatives as well as state governments. It is expected that up to five licences may be issued and notification of successful applications will be made in the first quarter of 2022. Digital banks are being touted as the driver of Financial Inclusion in the country and the provider of more financing opportunities for Small and Medium Enterprises (SMEs).
CONCLUSION
Malaysia has come a long way in FinTech growth and much of the FinTech adoption in the country is owed to a well-thought strategy and encouraging regulations in support of the growth and adoption of FinTech across different verticals. Covid-19 acted as a catalyst for financial services in Southeast Asia and more specifically in Malaysia. The pamdemic drastically accelerated Malaysia’s shift to a cashless world, with unprecedented growth in the number of wallets and e-payment transaction options.
Understanding the potential of FinTech in the national economy, regulators and government development authorities brought in numerous conducive regulatory changes to help digital finance thrive. As of the beginning of the year, Malaysia has been home to 233 FinTech startups, and many more will join soon. Even though it has been a success story so far, the country has yet to produce a homegrown FinTech unicorn. Malaysia needs to attract the best tech talents and create the technical prerequisites necessary for FinTech unicorns to grow.
ISEAS Perspective 2021/128, 29 September 2021
ENDNOTES
[2] https://dealroom.co/blog/the-future-of-fintech-in-southeast-asia
[3] Fintech Malaysia Report (2021) https://fintechnews.my/27070/malaysia/fintech-malaysia-report-2021/
[4] https://www.bnm.gov.my/-/financial-technology-regulatory-sandbox-framework
[5] https://www.dealstreetasia.com/stories/moneymatch-seriesa-250023/
[7] https://www.apu.edu.my/media/news/2166
[9] https://fintechbooster.com.my/
[10] https://www.sc.com.my/development/digital/mycif
[11] https://theaseanpost.com/article/digitalising-malaysias-smes-fintech
[13] https://www.treasury.gov.my
[14] https://www.bnm.gov.my/-/launch-of-the-fintech-booster-programme ; https://youtu.be/voKU1omK6Lo
[15] https://youtu.be/voKU1omK6Lo
[16] https://www.bnm.gov.my/-/regulatory-framework-for-digital-banks-update-
[17] https://www.bnm.gov.my/-/bnm-receives-29-applications-for-digital-bank-licenses
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2021/127 “Thai PM Remains Vulnerable Without a Party of His Own” by Termsak Chalermpalanupap
EXECUTIVE SUMMARY
- Thai Prime Minister General Prayut Chan-ocha has narrowly escaped “political assassination” in the House of Representatives.
- A formidable faction in the Phalang Pracharat Party (PPP), the largest in the 17-party ruling coalition, was scheming to join the opposition to vote out the prime minister at the conclusion of a four-day censure debate held in early September. The mastermind behind the attempted “political assassination” was PPP secretary-general Captain Thammanat Prompao.
- Fortuitously for Prayut, one of the prime movers in the anti-Prayut faction of the PPP defected, and alerted the prime minister. PPP leader Deputy Prime Minister General Prawit Wongsuwan pleaded ignorance of this move for his failure to alert General Prayut of this plot.
- General Prayut counter-attacked vigorously and prevailed. He survived a no confidence vote on 4 September and sacked Captain Thammanat from the post of deputy agriculture minister – without consulting General Prawit, who had tried to protect Captain Thammanat.
- Distrust between General Prayut and General Prawit – two leaders of the 2014 coup – may have already emerged, and this will have significant implications for Thai politics.
- Prayut’s position now looks vulnerable.
* Termsak Chalermpalanupap is Visiting Fellow in the Thailand Studies Programme, ISEAS – Yusof Ishak Institute.
INTRODUCTION
Thai Prime Minister General Prayut Chan-ocha recently narrowly survived a “political assassination attempt” by an influential faction of the largest government party. Although he emerged victorious, his premiership now looks vulnerable.
In what General Prayut considered an “ambush”, a group of government MPs, mostly from the Phalang Pracharat Party (PPP) but including several MPs from micro-parties in the ruling coalition, prepared to join the opposition in voting against the prime minister at the conclusion of the recent no-confidence debate. Should this have happened, General Prayut would have been the first premier in 89 years of Thai parliamentary democracy ever to be voted out in a censure.
Unconvincingly, PPP leader Deputy Prime Minister General Prawit Wongsuwan claimed he was unaware of the developing revolt, and could therefore not alert his “beloved younger brother” General Prayut to the plot.
DARING REVOLT
The plan was rather straightforward. Plotters aimed to recruit 40-50 government MPs to join opposition MPs in voting against General Prayut in the no-confidence showdown in the House of Representatives on 4 September. General Prayut’s premiership would immediately have ended, and ministers in his cabinet would have had to leave office en masse.
The mastermind behind this revolt was Captain Thammanat Prompao, secretary-general of the PPP, the largest party in the 17-party ruling coalition. The 56-year-old former Army officer was Deputy Minister in the Ministry of Agriculture. When elected party secretary-general on 18 June, he pledged to transform the PPP into a strong “political institution”, and erase its image of being an “ad hoc party” set up just to serve one person or one group.[1]
Captain Thammanat had previously described himself as the “main artery of the government”, and even claimed that, without him, the Prayut administration would collapse.[2] He headed a powerful PPP faction known as the “Four Deputies”, which included Deputy Finance Minister Santi Promphat, Deputy Labour Minister Dr Narumon Pinyosinwat, and Deputy Transport Minister Athirat Rattanaset. Also included in the faction was Athirat’s father Virat, the ruling coalition’s chief whip and a deputy PPP leader.
All of these figures have close ties to party leader General Prawit, and their faction controlled about 40 MPs, including at least half of the 26 members of the PPP’s executive committee.[3]
Captain Thammanat also has close links with government MPs from the ruling coalition’s 10 micro-parties, nine with just one MP each and the tenth with two. The plotters had approached these MPs to urge them to vote against General Prayut; some of them had agreed.[4] When the four-day no-confidence debate against General Prayut and his five ministers[5] started on 31 August, Captain Thammanat thought that he had enough votes to oust the premier. The only hint that a political upheaval might be coming was Captain Thammanat’s insistence that all PPP MPs could freely decide on how to vote at the end of the no-confidence debate.[6]
Captain Thammanat’s objectives were simple but ambitious.
- After unseating General Prayut, the PPP would nominate General Prawit — the principal deputy prime minister, with responsibility for national security — for the premiership.[7]
- In the new Prawit administration, Captain Thammanat would become interior minister, with control over provincial governors and the second largest budget allocation of any government agency.[8] Controlling the Interior Ministry is crucial to fulfilling Captain Thammat’s mission of making the PPP the top party in Thailand’s next general election.
- Having enticed the PPP’s coalition partners to support a Prawit premiership, the new government would allocate more cabinet posts to each of those partners. General Prayut’s departure would free up several cabinet seats, including interior, defence, finance and energy.[9]
VIGOROUS COUNTER-ATTACK
This plot was the most serious challenge to General Prayut’s premiership in the seven years since he, as Army chief, led the coup that toppled the Phuea Thai-led government of Prime Minister Yingluck Shinawatra on 22 May 2014.
It so alarmed General Prayut that he sought urgent clarification from his “big brother” General Prawit. The response from General Prawit must have been quite reassuring to the premier: There would be no change! General Prawit did not want to be prime minister.
More importantly, General Prayut also received even more important reassurance – word from the palace that the King continued to have confidence in his premiership. These assurances emboldened General Prayut to strike back vigorously. He made three points in an unusual long impromptu talk to the media at the parliament on 1 September: no plan to reshuffle his cabinet, no plan to dissolve the House and call for an early general election, and no truth to reports that he had lost the confidence of the King.[10]
On the crucial third point, he added, “To claim that someone higher up wants to replace the prime minister is a serious offense. I was the only one who most recently had an audience [with the King] to report on government matters. No one else did that. Isn’t this clear?”[11]
Following the premier’s remarks, Captain Thammanat’s revolt began to fizzle out. Santi was the first in the Four Deputies faction to defect. On 2 September, he was seen inside a reception room at the parliament where General Prayut received groups of MPs from the PPP, including several MPs from Santi’s group.
One opposition MP complained to the House Speaker during the censure debate that General Prayut was bribing each government MP with 5 million baht in cash to vote for him.[12] But, when it was his turn to respond in the House, General Prayut denied bribing any MPs. He clarified that he merely received groups of government MPs, whom he had rarely met in the past, and that they just called on him to show support for his premiership.
UNFORGIVEABLE DAMAGE DONE
As it turned out, General Prayut and the five ministers facing censure all passed the no-confidence voting. But political damage from what Captain Thammanat attempted to do was serious and seemingly unforgiveable.
Outcome of the No-Confidence Vote on 4 September 2021
Even though only four government MPs[13] voted against him, General Prayut received the second lowest number of votes, only 264; the lowest went to Labour Minister Suchart Chomklin, 263.
Worse still, the prime minister received the highest number of votes of no confidence, 208. Such a double embarrassment is the worst outcome of the three censure votes that he has faced,[14] and Prayut quickly retaliated by seeing to the dismissal of Captain Thammanat and Dr Narumon from the cabinet before they could submit their resignations.[15]
Captain Thammanat calmly accepted defeat and retreated to his hometown in the Northern province of Phayao. He did not stay on in Bangkok to support the proposed amendments to Thailand’s 2017 Constitution. The parliament passed those amendments on 10 September,[16] despite rumours that General Prayut might mobilise his supporters in the Senate to block them in order to undercut the PPP as well as the opposition Phuea Thai Party.[17]
Captain Thammanat has not resigned from the PPP. General Prawit has asked him to stay on to assist in strengthen the party. He attended the PPP’s leadership meeting on 15 September. Dr Narumon, who is the party’s treasurer, also attended. General Prawit called the meeting to introduce the PPP’s new chief strategist, General Wich Thephassadin, who is a retired former assistant Army chief; he was edged out for the top Army post by General Prayut in 2010.
For the time being, Captain Thammanat is keeping a low profile, and keeping his options open. He may set up his own party, or he could join the Phuea Thai Party.[18] He has been a successful political “fixer” in spite of his checkered past, including imprisonment for four years in Australia on a heroin smuggling conviction in the 1990s.[19]
VICTORIOUS BUT VULNERABLE
General Prayut’s political victory may be short-lived, and the attempted revolt has clearly exposed his vulnerability. While saved by the decisive assurance from the palace, he has also been relying quite precariously on General Prawit and the PPP, over which he has no control.
Although General Prayut continues to praise General Prawit in public, their decades-long personal ties can only have been seriously strained by recent events. Given the plot, it is hard to believe that General Prawit was unaware of Captain Thammanat’s scheming. In any case, he neither tried to stop Captain Thammanat nor alerted General Prayut.
Distrust may now have developed between these two retired generals and former Army chiefs. General Prayut – without consulting General Prawit – secretly recommended that the King command the dismissals of Captain Thammanat and Dr Narumon.[20]
This can only have offended General Prawit, who tried to protect Captain Thammanat by making him apologise to General Prayut on 3 September. On the same day, General Prawit also instructed PPP MPs to vote for General Prayut. But despite all the PPP’s MPs voting for him on 4 September, General Prayut proved unwilling to forgive Captain Thammanat.
General Prayut can now assert his primacy instead of living in the shadow of General Prawit. But in distancing himself from the latter man, who held the post of defence minister for 12 years,[21] the prime minister will pay the huge price of losing the support of General Prawit’s power base in the armed forces.
One indication that this is already happening is the delay in this year’s annual promotion and reshuffling of top military posts. The Defence Council, which General Prayut chairs in his capacity as defence minister,[22] has been slow in preparing the final promotion lists. The lists were finally announced on 14 September. Bones of contention included nominees for the posts of Navy commander, Air Force commander, and permanent secretary of the Ministry of Defence. Normally, the annual promotion and reshuffling are announced in early September, with the retirement of military personnel reaching 60 years old taking place at the end of September, and new appointees taking office on 1 October each year.
THE “THREE Ps” IN DISARRAY
Generals Prayut, Prawit and Anupong (whose nickname is “Pok”) are known as the “Three Ps” of the Eastern Tigers faction of the Thai Army.[23] The influence of this faction has been eroding since the rise of General Apirat Kongsompong to lead the Army in October 2018. General Apirat headed a new “Red Rim” faction[24] closely linked with the palace, and he was succeeded as Army chief in October 2020 by another prominent member of this “Red Rim” faction, General Narongpan Jitkaewtae. After leaving the Army, General Apirat was appointed both a deputy to the chamberlain of the Royal Household and deputy director of the Crown Property Bureau.
In a recent public opinion survey, slightly less than 40 per cent of those interviewed believe that the “Three Ps” would be able to set up a new government after the next general election.[25] This suggests that the political influence of the “Three Ps” is no longer as overwhelming as it had been for most of the period since the 2014 coup.
Another weakness that General Prayut has is the fact that he has no party of his own. This left him exposed in the no confidence debate and vote. Only 34 more votes against him would have ousted him from the premiership, with the minimum majority of 242 votes in the 482-member House. With General Prayut on shaky ground, there is every possibility that others in the troubled ruling coalition will attempt to overthrow him in yet another censure in the House next year.[26]
WHAT CAN GENERAL PRAYUT DO?
To ensure his political survival, General Prayut’s first option is to adjust his leadership style and try to stay on until the end of his four-year term in March 2023. By then, the COVID-19 pandemic may have ended and the Thai economy has begun to recover. He would have by then also set a record of serving nine years in the premiership. Mission accomplished. Prayut can then proudly step down and leave national politics for good.
Meanwhile, General Prayut has promised to make time to listen to MPs. Undoubtedly, many government MPs will request him to reshuffle the cabinet sooner rather than later, and to re-allocate ministerial posts more equitably. In the current cabinet, PPP leader General Prawit does not head any significant ministry, whereas the Bhumjaithai Party’s leader is Minister of Public Health, and the Democrats’ leader is Minister of Commerce. Further, the PPP’s group of 14 Southern MPs is demanding a cabinet post. Also waiting anxiously for their turn are the Thai Local Power Party, which has five MPs, and the seven micro-parties that firmly supported General Prayut in the censure vote.
General Prayut’s second option is to become a full-fledged politician by setting up a party of his own, assuming that General Prawit stays put and tries to strengthen the PPP. General Prayut can team up with his other “elder brother”, Interior Minister General Anupong, who was often seen alongside him during the crisis week in early September.
Both General Anupong and General Prayut share a common disdain for notionally unscrupulous politicians, and General Anupong in particular has avoided associating with MPs, for fear of being asked for favours. Captain Thammanat wanted for this reason to wrestle from General Anupong the interior minister’s post, one that brings immense patronage and largesse for handing out to MPs.
Under this second option, General Prayut can avoid directly offending General Prawit, for whom he has professed deep respect as his “first boss” and “mentor”. The question is whether he can acquire “ammunition” for his party’s candidates to use in the next general election. And who will play the role of “fixer” and “monkey keeper” for him, now that Captain Thammanat, who used to play those roles in the PPP, is gone?
The third option will arise if General Prawit, who is now 76 and in poor health, calls it quits. General Prayut can then simply take over the PPP and, when ready, dissolve the House and lead the party into an early general election in 2022.
One exclusive advantage that General Prayut has over all other politicians is the existing strong support for him in the Senate. If he vies for the premiership again after the next general election, he can count on votes from most of the 250 senators, empowered under the Constitution to join MPs in selecting the prime minister until the end of their five-year term in May 2024.[27]
CONCLUSION
The days of the political domination of the “Three Ps” in Thai politics are now clearly numbered. General Prayut will now need to move fast and decisively to show better results, since the public feeling is that his promise of “returning happiness to Thailand” is long overdue.[28]
Before he passed away in May 2019, General Prem warned General Prayut that his “reserves are depleting”. General Prayut’s falling out with his “big brother” General Prawit will be a damaging blow to his premiership.
For this reason, General Prayut will need to strengthen his political power base, by either heading a party of his own or taking over the PPP. Without such a move, his premiership will continue to weaken, and he may not be able to survive the next censure vote in the House.
ISEAS Perspective 2021/127, 28 September 2021
ENDNOTES
[1] “ตามคาด ‘ธรรมนัส’ ผงาดนั่งเลขาฯ พลังประชารัฐ ‘อนุชา’ หลุดเก้าอี้” [As expected, ‘Thammanat’ rises to be the secretary-general of the Phalang Pracharat Party, ‘Anucha’ lost the seat], Matichon Online, 18 June 2021 (www.matichon.co.th/politics/news_2782626, accessed 9 September 2021). In the party leadership election held in Khon Kaen, the second largest province in the populous Northeast, General Prawit was re-elected unopposed as party leader. Captain Thammanat edged out a more senior rival, Deputy Finance Minister Santi, to become the new party secretary-general.
[2] “ผู้กองธรรมนัส ‘ผงาด’ เส้นเลือดใหญ่รัฐบาล” [Captain Thammanat soars: the main artery of the government], Than Setthakit Online, 18 June 2021 (www.thansettakit.com/politics/484532, accessed 11 September 2021). Captain Thammanat first compared himself to the “main artery” of the government in an interview with “The Nation Weekend Talk with Three Editors” television programme on 14 September 2019.
[3] Ibid. The party treasurer Dr Narumon and the party registrar Bounsing Warinrak, previously the chairman of the Phayao Provincial Administrative Organization, are close allies of Captain Thammanat, who is an MP from his home province of Phayao.
[4] “ดำรงค์ แฉ มีขบวนการ ล็อบบี้ โหวตไม่ไว้วางใจ ยันจุดยืนไม่รับกล้วย” [Damrong discloses there is a movement to lobby for no-confidence votes, but he affirms his stand against accepting any bananas], Krungthep Thurakit Online, 7 September 2021 [www.bangkokbiznews.com/news/958641, accessed 10 September 2021]. MP Damrong Pidej is leader of the Thai Forest Conservation Party, which has two MPs. He voted against the prime minister, but his colleague MP Yanyong Thanompichai-thamrong voted for the prime minister. “Banana” is Thai political slang for cash bribery. MPs from micro-parties in the ruling coalition have been compared to “monkeys”. And Captain Thammanat did once identify himself as the “monkey keeper” in charge of finding “bananas” to feed these “monkeys” so that they would continue to support the Prayut premiership in the House.
[5] Also facing censure were Deputy Prime Minister and Health Minister Anutin Charnvirakul, Transport Minister Saksiam Chidchob, Agriculture Minister Chalermchai Sri-on, Labour Minister Suchart Chomklin, and Digital Economy Minister Chaivudh Thanakasmanusorn.
[6] All MPs as well as all senators are, according to Section 114 of the 2017 Constitution, “representatives of the Thai people and [they are] free from any mandate, commitment, or control. They shall perform duties honestly for the common interest of the Nation and the happiness of Thai people as a whole, without conflict of interest”. However, during the censure debate, leaders of other government parties — notably Bhumjaithai (61 MPs), the Democrats (48 MPs), Chat Thai Pattana (12), the Action Coalition for Thailand (5 MPs), and Thai Local Power (5 MPs) — all pledged their support for General Prayut.
[7] In the March 2019 general election, the PPP nominated General Prayut for the premiership. If, after losing a no-confidence of the House, General Prayut called it quits, then the PPP together with its current coalition partners could have teamed up with a majority of senators to consider appointing an “outsider” — that is, someone not nominated for the premiership in the last general election — as the new prime minister. At least two-thirds of the combined memberships of the House (482 MPs) and the Senate (250 senators), or 488 votes, would be needed to install an “outsider” premier.
[8] The Interior Ministry’s budget is second only to that of the Ministry of Education, but more than that of the Ministry of Defence budget. In the 2022 budget, the Interior Ministry will have 315 billion baht, while the Education Ministry will have 330 billion baht. The Finance Ministry will have 273 billion baht, and the Defence Ministry 199.9 billion baht. See details on the budget allocation at the website of the Senate Secretariat, www.senate.go.th/document/Lawdraft/Ext5/5129_0003.PDF (accessed 8 September 2021). The House passed the draft budget bill on 22 August with 257 votes for and 189 votes against the bill; the Senate unanimously endorsed the draft budget bill on 30 August. The Thai Government budget year starts every 1 October.
[9] In the current government General Prayut – who does not belong to any party – is concurrently the prime minister and the defence minister. His chosen men have been holding the following posts: deputy prime minister (for legal affairs), deputy prime minister (for economic affairs), deputy prime minister (for international affairs), minister of interior, minister of finance, minister of energy, minister of foreign affairs, and deputy minister of defence.
[10] “อ่านเต็มๆ ‘บิ๊กตู่’ เปิดใจร่ายยาว ไม่มีความคิดยุบสภาหรือปรับคณะรัฐมนตรี” [Read in full: ‘Big Tu’ opens his heart in a long talk, not thinking about dissolving the House or reshuffling the cabinet], Thai Post Online, 1 September 2021 (www.thaipost.net/main/detail/115256, accessed 11 September 2021). “Big Tu” is General Prayut’s nickname.
[11] Ibid.
[12] “‘วิสาร’ ปูด ‘นายกฯ’ แจกเงิน ส.ส. คนละ 5 ล้านกลางสภาฯ” [‘Visarn’ alleges that ‘Prime Minister’ hands out 5 million baht to each MP in the parliament building], Krungthep Thurakit Online, 2 September 2021 ( www.bangkokbiznews.com/news/detail/957994, accessed 11 September 2021). Visarn Taychathirawat, a Phuea Thai Party MP from Chiang Rai Province, was on the House floor attacking General Prayut when he suddenly blurted out his accusation of the ongoing cash bribery in the reception room on the third floor of the parliament building, where General Prayut was receiving MPs from the PPP. Virakorn Kamprakob, a veteran PPP MP from Nakhon Sawan Province, stood up to clarify that he had just come down from the room in question after joining several other PPP MPs to call on General Prayut to show their support. But he denied there was any cash bribery involved, and demanded Visarn’s retraction. The House Speaker has promised to investigate.
[13] The four government MPs who voted against General Prayut were Anwar Saleh (Democrat, Pattani), Peerawit Ruengluedollapak (Thai Raktham, party-list), Suratin Pijarn (New Democrat, party-list), and Damrong Pidej (Thai Forest Conservation, party-list).
[14] In the first censure vote on his premiership, General Prayut received 272 votes of confidence on 28 February 2020, the same number as Deputy Prime Minister Dr Wissanu Krea-ngarm, Interior Minister General Anupong Phaochinda, and Foreign Minister Don Pramudwinai. Deputy Prime Minister General Prawit received the highest votes of confidence, 277. And the lowest number of votes went to Captain Thammanat, 269. In the second censure vote, on 20 February 2021, General Prayut again received 272 votes of confidence, the same as General Anupong. Both General Prawit and Captain Thammanat received more votes, 274. The highest number of votes of confidence went to Anutin, 275. Labour Minister Suchart received the least number of votes of confidence on that occasion, 263.
[15] The royal command on their dismissals was published in the Royal Gazette on 8 September, with immediate effect. Captain Thammanat was too late when he told a press conference on 9 September that he was submitting his resignation, dated 8 September 2021. Deputy Prime Minister Dr Vissanu Krea-ngarm, the government’s chief legal expert, confirmed that the two deputy ministers were dismissed. At first, Dr Narumon did not seem to be aware that she had been dismissed; she attended a meeting on labour skills development at Government House on the morning of 9 September. General Prawit, who chaired the meeting, was also apparently unaware of Dr Narumon’s dismissal. During the meeting, the latter presented a report in her capacity as the deputy labour minister in charge of the Labour Ministry’s Department of Skills Development.
[16] One of the proposed amendments seeks to increase the number of elected members of parliament from 350 to 400, and to reduce the number of party-list MPs from 150 to 100. The other proposed amendment seeks a return to the two-ballot voting system, in which each voter casts two ballots — one for a constituency MP and the other for a party. The votes that each party receives from all constituencies would go toward calculating the allocation of party-list seats. The two proposed amendments were passed with 472 votes (181 votes from government MPs and 142 votes from opposition MPs, the latter mostly from the Phuea Thai Party), and 149 votes from senators. The amendments will benefit large and well-funded parties capable of fielding candidates in all 400 constituencies.
[17] The proposed amendments came from the Democrat Party. The PPP and the Phuea Thai Party – the two largest winners in the 2019 general election – supported the proposals. Bhumjaithai, the second largest party in the ruling coalition, and Move Forward, the second largest opposition party, both opposed the proposed amendments; MPs from these two medium-sized parties mostly abstained in the vote at the final reading of the amendments on 10 September.
[18] Thammanat belonged to the Thai Rak Thai Party led by Thaksin Shinawatra in the early 2000s. He is known to have close ties to several key senior Phuea Thai figures. This led to speculation that he wanted the PPP to team up with the Phuea Thai Party to form a two-party ruling coalition government after the next general election, and to edge out General Prayut for good.
[19] “ธรรมนัส รอด ศาลรัฐธรรมนูญชี้ ไม่ขาดคุณสมบัติรัฐมนตรี” [Thammanat survives, the Constitutional Court rules that he does not lack qualifications to be a minister], Prachachat Online, 5 May 2021 (www.prachachat.net/politics/news-662489, accessed 12 September 2021). The Constitution Court on 5 May 2021 ruled that Captain Thammanat’s drug-smuggling conviction in Australia had not disqualified him from holding public office in Thailand, because the conviction did not happen in a Thai court. Captain Thammanat would only admit that he was at the wrong place at the wrong time when police raided his hotel room in Sydney in 1993, where about 3.2 kilogrammes of heroin were seized. He served four years in prison and was released on 14 April 1997 and deported.
[20] “ให้ไปดู ‘ม. 171’ นายกฯ ปัดตอบปลด ร.อ. ธรรมนัส – นฤมล พ้นตำแหน่ง รมต.” [Go read “Section 171”, Prime Minister brushes aside questions about dismissing Captain Thammanat and Narumon from their ministerial posts], Khom Chat Luek Online, 10 September 2021 (www.komchadluek.net/news/482997, accessed 10 September 2021). Section 171 of the 2017 Constitution stipulates that “The King has the Royal Prerogative to remove a Minister from his or her office upon the advice of the Prime Minister.”
[21] General Prawit was the defence minister in the Abhisit administration, December 2008-August 2011, and during the Prayut-led military regime in power after the 2014 coup, August 2014-July 2019.
[22] General Prayut chairs the Defence Council in his capacity as defence minister. Other members of the council are Deputy Defence Minister General Chaicharn Changmongkol, Defence Ministry Permanent Secretary General Nat Incharoen, Army Commander General Narongpan Jitkaewthae, Navy Commander Admiral Chatchai Sriworakan, and Air Force Commander Air Chief Marshal Airbull Sutthipan. General Prayut replaced General Prawit as defence minister and as supervisor of the national police force at the start of his premiership at the head of an elected government in July 2019.
[23] General Prawit was Army chief in 2004-2005, General Anupong in 2007-2010, and General Prayut in 2010-2014.
[24] Senior military and police officers belonging to this “Red Rim” clique often wear a white t-shirt with a red-rimmed neck underneath their uniforms, and keep a short crew cut.
[25] “ความเป็นไปได้ทางการเมืองของ 3 ป.” [Political possibilities of the “Three Ps”] Thai Post Online, 12 September 2021 (www.thaipost.net/main/detail/116406, accessed 12 September 2021) The survey was conducted by the NIDA Poll service of the National Institute for Development Administration (NIDA), in 6-9 September 2021.
[26] Prime Minister General Kriangsak Chomanan resigned during a censure on 28 February 1980 to avoid imminent defeat, after ruling without any political party of his own for two years. His successor, General Prem Tinsulanonda, lasted much longer, eight and half years, largely because of strong support from the palace and the military. General Prem relinquished the premiership in order to avoid the threat of censure following the general election in July 1988, and he was soon appointed to the Privy Council by King Bhumibol.
[27] In the process of selecting the prime minister on 5 June 2019, 249 senators voted for General Prayut, the PPP’s nominee for the premiership. Only one senator, Senate President Dr Pornpetch Wichitcholchai, abstained. General Prayut won the premiership with 500 votes, 251 votes from government MPs in 19 parties and 249 votes from senators. His rival from the opposition, Thanathorn Juangroongruangkit, leader of the Future Forward Party, received only 244 votes, all from MPs belonging to seven opposition parties. The number of parties in the ruling coalition has dropped to 17 after the Thai Civilised Party of MP Mongkolkit Suksin-tharanon left the coalition to join the opposition, and the People’s Reform Party closed down and its leader MP Paiboon Nititawan became a deputy leader of the PPP.
[28] Soon after staging the coup on 22 May 2014, General Prayut promised to “return happiness to Thailand”. He even composed a song “คืนความสุขให้ประเทศไทย” [Returning happiness to Thailand], available at https://www.youtube.com/watch?v=wT6qWjrCYhI.
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2021/126 “The Philippines and the South China Sea Arbitration Award: External Appeasement and Internal Dissension” by Jay L. Batongbacal
EXECUTIVE SUMMARY
- Since taking office in 2016, Philippine President Duterte has downplayed the South China Sea Arbitration Award in the hope of gaining China’s infrastructure and financial offerings. This hope has so far remained unfulfilled.
- Despite this attitude on the part of the president, various departments in the Philippine government have nevertheless been using the Award to defend and exercise Philippine legal rights and jurisdiction in its maritime zones.
- For example, the Department of Foreign Affairs remains guided by the Award at the Bilateral Consultation Mechanism with China, during negotiations on a code of conduct in the South China Sea, and at various UN fora.
- The Philippine armed forces and coast guard have intensified patrols in the West Philippine Sea, and increasingly called out China’s encroachments on Philippine maritime zones.
- Oil and gas joint development with China is still at an impasse since the Philippine position is premised on its exclusive sovereign rights, and the environment and fishery sectors have stepped up regulatory and other measures to protect Philippine marine resources as vindicated by the Award.
- The bureaucracy’s adherence to the Award and negative public opinions of Duterte’s China policy mean that the Award continues to serve as a bedrock for The Philippines to exercise its maritime entitlements and delegitimize China’s claims and bullying actions in the South China Sea.
* Jay L. Batongbacal is Professor of the University of the Philippines’ College of Law and Executive Director of its Graduate Studies Program; concurrently he serves as Director of the UP Institute for Maritime Affairs & Law of the Sea.
INTRODUCTION
At the 75th Session of the United Nations General Assembly (UNGA) in September 2020, Philippine President Rodrigo Duterte read a speech wherein he “affirm[ed] “commitment in the South China Sea in accordance with UNCLOS and the 2016 Arbitral Award.” He then described the South China Sea (SCS) Arbitration Award as being “part of international law, beyond compromise and beyond the reach of passing governments to dilute, diminish or abandon”, and said that his government “firmly reject[ed] attempts to undermine it”.[1] He even thanked other states that had come forward and expressly stated their support for the Award, such as the United States, the United Kingdom, France and Germany.
Such a firm statement came as a surprise to observers and critics. Since he assumed office in June 2016, Duterte has actively downplayed and avoided official discussion of the Award, and openly belittled its value in the Philippine foreign policy.[2] For five years prior, his constant refrain had been that assertion of the country’s legal rights under the Award would lead to war.[3] So what explains his about-turn at the UNGA last September? Is it genuine and will it be sustained? This Perspective reviews the dissonance within the Duterte administration that underlines The Philippines’ self-contradictory approach towards the Award over the last five years.
PRESIDENTIAL PREFERENCES VERSUS THE BUREAUCRACY
Since he took office in 2016, Duterte had taken a marked clientelist approach towards China in the hope that Beijing would reciprocate with infrastructure and financial boons. In the aftermath of a “soft-landing” Duterte orchestrated for China upon the promulgation of the Award, Philippines-China relations on the SCS had a veritable ‘honeymoon’ soon after Duterte visited China in late 2016 and came home with US$24 billion worth of pledges in infrastructure and business deals.[4]
When The Philippines assumed the rotating chairmanship of ASEAN in 2017, Duterte suppressed any formal discussion of the country’s victory and framed it as a purely bilateral matter[5] regardless of its obvious regional implications.[6] Incidents that demonstrated how China continued to advance into the West Philippine Sea (WPS) – Manila’s name for its maritime jurisdictions in the SCS – were constantly suppressed or downplayed. These included, for instance, Chinese warning shots fired against Filipino fishermen at Union Banks,[7] a brief stand-off over Sandy Cay just 4.5 nautical miles from Pag-asa Island in July 2019,[8] interference with a resupply mission at Second Thomas Shoal in September 2019,[9] and unauthorized marine scientific research in the area of Palawan and Reed Bank.[10] Duterte also kept the Armed Forces of the Philippines (AFP) and the Philippine Coast Guard (PCG) on a short leash by restricting their patrols and operational presence in the SCS to the bare minimum.[11] Access to information on unfriendly encounters between Chinese forces was also limited, and the incidents would have gone unnoticed were it not for revelations at Congressional budget hearings.[12] Throughout this time, the administration instead took every opportunity to tout the expected benefits of good relations with Beijing, including a golden age of infrastructure building and joint development of offshore petroleum resources fully funded by China.
In the trenches, however, the story was a bit different. The professional bureaucracy did not easily toe the administration’s line or mirror Duterte’s radical swing. The Arbitration Award remained at the core of Philippine diplomatic positions in closed-door meetings of the Philippines-China Bilateral Consultation Mechanism. The near-annual event was a formal venue for the two sides to privately discuss the disputes and thresh out differences, but the joint statements issued from its meetings became increasingly repetitive and hollow.[13] Rather than mark progress, they signaled continuing deadlocks, demonstrating that China has not actually been able to get The Philippines to ignore the Award.
One good example is the impasse on joint development of oil and gas resources. After signing a memorandum of understanding (MOU) in 2018,[14] The Philippines provided China with various openings for participation in petroleum exploration and development. The steps included the approval of the purchase by China National Offshore Oil Corporation (CNOOC) of a majority stake in a petroleum service contract in undisputed waters that had been languishing since 2006; and a new policy for unsolicited proposals for negotiated petroleum concession contracts instead of open public bidding.[15] The Duterte administration even publicly claimed that China was offering terms more favourable than those contained in standard petroleum concession contracts with multinational petroleum firms, to soften public scepticism and make any future deal more politically palatable.[16]
Despite these, Beijing has not signed any new agreement implementing the MOU because the Philippine position is premised on The Philippines’ exclusive sovereign rights to the resources as vindicated by the Award. It would require China to become essentially a service contractor of the State in conformity with Philippine petroleum laws. At the time of writing, neither the Philippine Department of Energy (DOE) nor the active service contractors in the West Philippine Sea have publicly announced any ventures with China.
The dissonance between Duterte’s personal policy preferences and the realities on the ground sparked divisions within his cabinet, especially between expectant economic managers and a sceptical security sector. Public opinion against his China policy also intensified, as by the middle of his term, the most prominent evidence of it was a sudden influx of Chinese workers and proliferation of online gambling operations catering to an exclusively Chinese market.[17]
The Arbitration Award also serves as The Philippines’ compass in the talks for the Code of Conduct in the SCS (COC). Foreign Secretary Teodoro Locsin Jr. made it clear that no agreement in the COC will set aside the Award, and that the latter will be incorporated into its terms and conditions even if not specifically mentioned.[18] It will probably take some more years to see whether this is indeed reflected in the document, since substantive discussions on the COC have been stalled by the Covid-19 pandemic.
Aside from the foreign secretary, Defence Secretary Delfin Lorenzana and armed forces officials have often struck tones discordant with Duterte’s preferred harmony. As early as 2017, they began calling out unauthorized Chinese marine scientific research activities in Philippine waters.[19] This was followed by revelations about China’s continuous deployment of its maritime militia around Philippine outposts in the Kalayaan Islands (the name given to the Spratlys claimed by The Philippines),[20] its unannounced military passage through Philippine inter-island waters,[21] and its increasingly stern warnings against Philippine patrol ships and aircraft operating in the SCS.[22] On one occasion in 2020, a patrol ship was targeted by a Chinese warship.[23]
The armed forces quietly moved ahead with plans to improve external defence capabilities directed at the contested areas, such as (i) the improvement of infrastructure in the Kalayaan Islands; (ii) acquisition of more modern naval assets like corvettes and frigates from South Korea, helicopters from the US, and close air support aircraft from Brazil; (iii) conduct of external defence exercises and activities, adding new exercises like Dagit-PA in addition to the annual Balikatan; (iv) improvement of maritime domain awareness capabilities with the receipt of radars from Japan and surveillance drones from the US, and (v) increases in naval and air patrols.[24] High-level bilateral engagements with the US, The Philippines’ treaty ally, also became more frequent, as did combined exercises to improve maritime and aerial capabilities, despite Duterte’s widely publicized disdain for the alliance. There was also an increase in related defence and security engagements with other US allies and partners such as Japan, South Korea and Australia. These engagements were quite diverse, ranging from bilateral talks to capacity-building and even joint exercises.[25]
As for the fisheries and environment sectors, the outer limits of The Philippines’ exclusive economic zone (EEZ) were delineated in accordance with the Award when the Bureau of Fisheries and Aquatic Resources (BFAR) divided Philippine waters into 12 distinct fisheries management areas.[26] In conjunction with the USAID, the BFAR embarked on a multi-year project to improve marine ecosystem governance and biodiversity management, including the efforts to address illegal, unreported and unregulated fishing (IUUF).[27] The project initially focused on inter-island and near-shore waters,[28] but may soon expand to the WPS. Satellite data show a marked increase in Chinese fishing activities in the SCS since 2013,[29] when Chinese President Xi Jinping actively encouraged the country’s fishermen to fish further south to assert Chinese sovereignty over the waters. These led to massive fishing efforts concentrated in the areas around Scarborough Shoal, and all across the southern sector of the WPS, and probably would have continued were it not for a lull apparently induced by the pandemic in 2020.[30]
Duterte at first relegated these developments to the background, especially after publicly claiming that he had personally and verbally allowed China to fish in the Philippine EEZ despite express constitutional prohibition.[31] But internally, frustration built up as reports kept coming in each year from fishermen that Chinese clam-digging operations continued to destroy precious coral habitats in Scarborough Shoal.[32] Personnel belonging to the China Coast Guard (CCG) there also began taking fish catch from Philippine fishermen at sea, even as they still prevented them from fishing in their original fishing grounds in the sheltered areas of the shoal.[33] The incidents were raised at the Bilateral Consultation Meetings but not acted upon.
By the summer of 2019, it was suggested that other, more visible legal options be considered due to field reports showing China was continuing with its destructive activities in the marine environment in the EEZ and violation of international law.[34] Subsequently, a local news team was able to independently take video evidence of and publicize destructive Chinese giant clam extraction operations in Scarborough Shoal within full view of the CCG ships stationed there.[35] Again, Malacañang (the Philippine presidential office) sought to downplay the incident but this only further set public opinion against Duterte’s policies and China itself.[36]
END OF THE HONEYMOON?
Philippine-China relations began to turn a corner in April 2019, when the Department of Foreign Affairs issued a strongly worded press statement that called out the increased and constant presence of hundreds of Chinese maritime militia vessels around Thitu Island (the Philippine name for this is Pag-asa Island) in the contested Spratly archipelago and demanded their withdrawal.[37] It also reiterated the Arbitration Award to debunk China’s claims to historic rights and any other sovereign rights or jurisdictions that exceed the substantive limits of the United Nations Convention on the Law of the Sea (UNCLOS). The statement was a clear departure from Malacañang’s public justifications and excuses for China’s behaviour in previous years.
Subsequently, on 9 June 2019, a Chinese fishing vessel ran into and sank a wooden Philippine fishing vessel anchored for the night at Reed Bank and abandoned the 22 crew members in the water, creating an intense public backlash for weeks. The crew members might have perished had they not been rescued by a Vietnamese fishing vessel that was five miles away.[38] In return, the Philippine foreign affairs department expressed solidarity with Vietnam when the CCG sank a Vietnamese fishing boat in April 2020.[39]
In 2020, the Philippine Mission to the United Nations lodged a Note Verbale with the Commission on the Limits of the Continental Shelf to dispute the second Malaysian submission for a continental shelf beyond 200 nautical miles in the SCS.[40] It also took the occasion to expressly invoke the Arbitration Award to directly contest China’s excessive sea claims which were reiterated in the latter’s own protest against the Malaysian submission. The move led to a subsequent exchange of Notes in the months that followed, with countries like Indonesia, Vietnam, the United States, Australia, UK, France, Germany and Japan contesting China’s excessive maritime claims and referencing the Award directly or indirectly.
The year 2021 heralded with a marked change in the Philippine posture. The inter-agency National Task Force for the West Philippine Sea (NTF-WPS) revealed the presence of more than 200 Chinese maritime militia vessels anchored at Whitsun Reef within the WPS.[41] This time, the AFP and PCG responded with a flurry of activity, flying the press over Chinese artificial islands, calling out the numbers and locations of militia and fishing vessels as they moved from reef to reef.[42] The PCG began showcasing its newly acquired ships in publicized EEZ patrols and exercises near Scarborough Shoal and the Kalayaan Islands. News of PCG ships shooing away Chinese fishing vessels contrasted sharply with the silence and apparent inactivity of previous years.[43]
On its part, the foreign affairs department announced that it was filing diplomatic protests every day that the Chinese fishing vessels remained within the EEZ,[44] while the environment department is drawing up plans for establishing marine protected areas in the WPS and disputed islands and reefs.[45] Bills defining the country’s maritime zones and implementing certain aspects of the Arbitration Award have passed through the required number of readings in both Houses of Congress and should soon be sent for harmonization at bicameral conferences.[46]
It cannot yet be concluded, however, that this more robust posture means a real change in Duterte’s own policy towards China. While the Philippine defence and foreign secretaries issued relatively severe statements, Duterte himself kept quiet for the most part and even admitted that he had to do so because he was still expecting delivery of Covid-19 vaccines from China.[47] With less than one year left in office, it is also likely that the more assertive stance was in anticipation of the upcoming Presidential elections in 2022, for which he needs a friendly successor to win.
Duterte has very little to show for his good personal relations with China: Of the promised US$24 billion in projects, less than a billion have actually been realized.[48] Even Duterte’s economic managers have complained of China’s inability to meet expectations.[49] The most prominent results of accommodation have been only two bridges in Metro Manila, two loans for dams opposed by affected local communities and criticized for less favourable terms and conditions, a railway that will not be implemented until after his term, and modest modernization projects. The Philippine government was forced to go back to the private sector to acquire support for its ambitious infrastructure development plans.[50]
China’s development assistance to The Philippines between 2016 and 2019 at around US$1 billion still lags far behind those of Japan (US$25.6 billion) and the US (US$3.5 billion).[51] Chinese private business interests and trade have boomed but benefits have not trickled down to the masses, and whatever gains were expected have been completely wiped out by a poorly managed pandemic response. Duterte hopes that securing Chinese vaccine supplies will salvage his failed appeasement policy. He still echoes Beijing’s official derision of the Award, having publicly called it “a piece of paper fit for a waste basket”.[52] In one of his verbal digressions at his final State of the Nation Address on 26 July 2021, he reiterated the fear of instigating war by asserting legal rights, and echoed China’s claim that no arbitration took place due to the latter’s absence from the proceedings.[53]
China’s three-no’s policy – no acceptance, no participation, no recognition – and its continued assertion of sovereignty and control in the SCS thus still finds an ally in President Duterte, but he does not fully carry with him the rest of the Philippine government or the wider public. If anything, his approach of fomenting fear of war and inviting friendship borne of intimidation has had the opposite effect of further deepening public suspicion of closer relations with China. Furthermore, institutional reflexes to protect national interests in the SCS against China’s incursions continue to work.
The counter-narrative of “right makes might” is still at play and has kept The Philippines from abandoning its hard-won victory despite Duterte’s best efforts to keep it in obscurity. It is likely that geopolitical forces will swirl more strongly around the Arbitration Award in the coming years, as it has provided a bedrock for regional persistence in their respective maritime claims. It also serves as an entry point for external maritime powers to stake their claim to the maintenance of the Rule of Law and the proper interpretation and application of UNCLOS in the SCS.
CONCLUSION
The way forward is not only to keep the Arbitration Award from being cast into oblivion, but for The Philippines to continue to actively exercise its rights, increasingly make use of its maritime entitlements despite China’s protests and intimidation, and ignore the fear instigated by its military and economic might. The Philippines’ hopes lie with struggling for the Rule of Law and working towards China’s compliance with the Award, in deeds if not in words. It should also work with other nations within and beyond the ASEAN region to both protect and strengthen themselves against the regional giant.
The Arbitration Award is still the principal authority defining what is right and wrong in the complex maritime disputes, and must remain the basis for eventually establishing a regional order that fairly and equitably allocates and distributes the benefits of the common marine heritage of Southeast Asia. It is still the only possible basis for the region’s maritime future.
ISEAS Perspective 2021/126, 24 September 2021
ENDNOTES
[1] Krissy Aguilar, “Duterte affirms arbitral win vs China before UN: It’s now part of international law”, INQUIRER.net, 23 September 2020, https://globalnation.inquirer.net/191077/duterte-affirms-arbitral-win-vs-china-before-un-says-its-already-part-of-intl-law.
[2] Benjamin Kang Lim, “Philippines’ Duterte says South China Sea arbitration case to take ‘back seat’”, Reuters, 19 October 2016, https://www.reuters.com/article/us-china-philippines-idUSKCN12J10S.
[3] Christia Marie Ramos, “Can’t afford to go to war with China over sea row, Duterte admits”, INQUIRER.net, 28 July 2020, https://globalnation.inquirer.net/189766/cant-afford-to-go-to-war-with-china-over-sea-row-duterte-admits.
[4] Willard Cheng, “Duterte heads home from China with $24 billion deals”, ABS-CBN News, 21 October 2016, https://news.abs-cbn.com/business/10/21/16/duterte-heads-home-from-china-with-24-billion-deals.
[5] Associated Press, “Duterte Won’t Bring Up South China Sea Arbitration Victory at Southeast Asia Summit”, The Wall Street Journal, 27 April 2017, https://www.wsj.com/articles/duterte-wont-raise-south-china-sea-arbitration-win-at-southeast-asia-summit-1493298290.
[6] Clive Schofield, “Legal and Geographical Implications of the South China Sea Arbitration”, presented at the Conference: “The South China Sea in the Broader Maritime Security of the Indo-Pacific Conference”, 28-30 September 2016, Canberra, Australia, http://www.maritimeissues.com/the-conversation/legal-and-geographical-implications-of-the-south-china-sea-arbitration.html.
[7] DJ Yap, “China shoos away Pinoys from Spratlys”, INQUIRER.net, 21 April 2017, https://globalnation.inquirer.net/155120/china-shoos-away-pinoys-spratlys.
[8] Jaime Laude, “Lorenzana refutes Carpio’s claims on Sandy Cay”, Philstar.com, 26 July 2019, https://www.philstar.com/headlines/2019/07/26/1937975/lorenzana-refutes-carpios-claims-sandy-cay.
[9] “China’s blockade of Ayungin Shoal resupply ‘objectionable’ — Palace”, Philstar.com, 23 September 2019, https://www.philstar.com/headlines/2019/09/23/1954276/chinas-blockade-ayungin-shoal-resupply-objectionable-palace.
[10] Frances Mangosin, “Chinese research vessel lingers near Recto Bank”, INQUIRER.net, 07 August 2020, https://globalnation.inquirer.net/190136/chinese-research-vessel-lingers-near-recto-bank.
[11] Felipe Villamor, “Philippines ends naval patrols near Scarborough Shoal”, Benar News, 11 November 2017, https://www.benarnews.org/english/news/philippine/sea-patrol-11212017115555.html; Faye Orellana, “Duterte has ordered AFP to cease patrolling West PH sea, says Alejano”, INQUIRER.net, 09 June 2018, https://newsinfo.inquirer.net/999076/duterte-has-ordered-afp-to-cease-patrolling-west-ph-sea-says-alejano.
[12] For example, details of an incident where a Chinese helicopter harassed a boat conducting a resupply of Second Thomas Shoal in 2018 were kept under wraps until revealed by a Congressman months later. See Paterno Esmaquel, “China chopper harasses PH rubber boat in Ayungin Shoal -lawmaker,” Rappler, 30 May 2018, https://www.rappler.com/nation/chinese-helicopter-harass-rubber-boat-ayungin-shoal-spratly-islands. A more serious incident involving a Chinese warship pointing its weapons at the Philippine Navy’s new but still-unarmed BRP Conrado Yap was not revealed to the public until three months after. (Frances Mangosing, “Wescom says Chinese warships readied guns vs PH Navy ship in PH territory,” INQUIRER.NET, 23 April 2020, https://globalnation.inquirer.net/187078/wescom-says-chinese-warship-readied-guns-vs-ph-navy-ship-in-ph-territory.
[13] See, for example, the Joint Press Release for the First Meeting of the Philippines-China Bilateral Consultation Mechanism on the South China Sea, May 2017, https://dfa.gov.ph/newsroom/dfa-releasesupdate/12694-joint-press-release-for-the-first-meeting-of-the-philippines-china-bilateral-consultation-mechanism-on-the-south-china-sea; Joint Press Release: Fifth Meeting of the Philippines-China Bilateral Consultation Mechanism on the South China Sea, October 2019, https://dfa.gov.ph/dfa-news/dfa-releasesupdate/24872-joint-press-release-fifth-meeting-of-the-philippines-china-bilateral-consultation-mechanism-on-the-south-china-sea.
[14] Memorandum of Understanding on Cooperation on Oil and Gas Development between the Government of the People’s Republic of China and the Government of the Republic of the Philippines”, China’s foreign ministry, 27 November 2018.
[15] Danessa Rivera, “Philippines, China set up jpint exploration in Palawan field,” Philstar, 27 September 2017, https://www.philstar.com/business/2017/09/27/1743265/philippines-china-set-joint-exploration-palawan-field; Pia Ranada, “Duterte EO removes obstacle to oil exporation deal with China firm,” Rappler, 30 May 2019, https://www.rappler.com/nation/duterte-executive-order-removes-obstacle-oil-exploration-deal-china-firm; “Executive Order No 80, s 2019, Rationalizing the rules for the engagement of third party participants under Petroleum Service Contracts, repealing for the purpose Executive Order No. 556 (s. 2006),” Official Gazette, 28 May 2019, https://www.officialgazette.gov.ph/2019/05/28/executive-order-no-80-s-2019.
[16] “Cayetano: China open to 60-40 split on joint exploration,” GMA News Online, 31 July 2018, https://www.gmanetwork.com/news/news/nation/662520/cayetano-china-open-to-60-40-split-on-joint-exploration/story/; “60-40 resource sharing between PH and China is ‘good for us’ says Panelo,” ABS-CBN News, 11 August 2019, https://news.abs-cbn.com/business/08/11/19/60-40-resource-sharing-between-ph-and-china-is-good-for-us-says-panelo.
[17] Sofia Tomacruz, “70% of Filipinos ‘worried’ about influx of Chinese workers in PH”, Rappler, 05 December 2019, https://www.rappler.com/nation/filipinos-worried-rising-number-chinese-workers-sws-september-2019;
[18] Sofia Tomacruz, “Philippines insists Hague ruling must be in South China Sea code,” Rappler, 27 August 2020, https://www.rappler.com/nation/philippines-insists-hague-ruling-must-be-in-south-china-sea-code.
[19 Dharel Placido, “Chinese survey ship spotted in Benham Rise, says defense chief,” ABS-CBN News, 09 March 2017, https://news.abs-cbn.com/news/03/09/17/chinese-survey-ship-spotted-in-benham-rise-says-defense-chief.
[20] Chiara Zambrano, “Hundreds of Chinese vessels circling Pag-asa Island: military,” ABS-CBN News, 29 May 2019, https://news.abs-cbn.com/news/03/29/19/hundreds-of-chinese-vessels-circling-pag-asa-island-military.
[21] JC Gotinga, “Military hits ‘trespassing’ by Chinese warships in Philippine waters,” Rappler, 15 August 2019, https://www.rappler.com/nation/military-hits-trespassing-chinese-warships-philippine-waters-sibutu-strait
[22] Associated Press, “Philippines raises concern over Chinese radio warnings to stay away from South China Sea islands,” South China Morning Post, 31 July 2018, https://www.scmp.com/news/china/diplomacy-defence/article/2157542/philippines-raises-concern-over-chinese-radio-warnings [23] “Chinese warship targeted Philippine Navy vessel in West PH Sea -AFP,” Rappler, 23 April 2020, https://www.rappler.com/nation/afp-says-chinese-warship-targeted-navy-vessel-west-philippine-sea-april-2020
[24] “Pag-asa Island beaching ramp completed,” Department of National Defense, 09 June 2020, https://www.dnd.gov.ph/Postings/Post/Pag-asa%20Island%20beaching%20ramp%20completed; JC Gotinga, “LIST: The Philippine Navy’s upcoming vessels,” Rappler, 11 September 2019, https://www.rappler.com/newsbreak/iq/list-philippine-navy-upcoming-vessels; Michael Punongbayan, “AFP to get 10 more helicopters,” Philippine Star, 24 May 2021, https://www.philstar.com/nation/2021/05/24/2100354/afp-get-10-more-helicopters; Priam Nepomuceno, “Delivery of ‘Super Tucano’ attack aircraft completed: DND,” Philippine News Agency, 02 October 2020, https://www.pna.gov.ph/articles/1117325; Priam Nepomuceno, “AFP holds airfield retake, urban warfare exercises,” Philippine News Agency, 24 September 2019, https://www.pna.gov.ph/articles/1081250; “Balikatan 19: AFP, US forces open 35th Balikatan Exercise,” Marines, 01 April 2019, https://www.marines.mil/News/News-Display/Article/1802010/balikatan-19-afp-us-forces-open-35th-balikatan-exercise; Karen Lema, “Philippines, US launch military drills amid South China Sea tensions,” Reuters, 12 April 2021, https://www.reuters.com/world/asia-pacific/philippines-us-launch-military-drills-amid-south-china-sea-tensions-2021-04-12; “PH gets P5-billion air surveillance radars from Japan,” CNN Philippines, 28 August 2020, https://cnnphilippines.com/news/2020/8/28/philippines-japan-air-surveillance-radar-systems-.html; Priam Nepomuceno, “newly acquired aerial drones to expand Navy ops,” Philippine News Agency, 25 November 2020, https://www.pna.gov.ph/articles/1122915; Priam Nepomuceno, “PH Navy upgrades to improve ‘green-water’ capabilities,” Philippine News Agency, 09 October 2020, https://www.pna.gov.ph/articles/1117985; Sofia Tomacruz, “Defense chief vows more navy, coast guard ships in West Philippine Sea,” Rappler, 28 March 2021, https://www.rappler.com/nation/lorenzana-vows-increased-presence-navy-coast-guard-ships-west-philippine-sea.
[25] “PH, Japan reaffirm strategic partnership in Tokyo meet,” Philippine News Agency, 14 June 2019, https://www.pna.gov.ph/articles/1072399 ; “PH, S. Korea to deepen maritime security ties,” Philippine News Agency, 25 March 2021, https://www.pna.gov.ph/articles/1134805; “PHL, Australia boost ties further, stage fifth ministerial meeting,” BusinessMirror, 01 September 2021, https://businessmirror.com.ph/2021/09/01/phl-australia-boost-ties-further-stage-fifth-ministerial-meeting.
[26] “Philippine waters divided into 12 Fisheries Management Areas for effective conservation and management,” Maritime Review, 19 August 2020, https://maritimereview.ph/philippine-waters-divided-into-12-fisheries-management-area-for-effective-conservation-and-management; see also “BFAR Fisheries Administration Order No 263, s. 2019, Establishment of Fisheries Management Areas (FMA) for the conservation and management of fisheries in Philippine waters.” BFAR Online, https://www.bfar.da.gov.ph/LAW?fi=461.
[27] “US, Philippines launch PHP1.3 Billion sustainable fisheries project,” USAID, 20 November 2018, https://www.usaid.gov/philippines/press-releases/nov-20-2018-us-philippines-launch-php13-billion-sustainable-fisheries-project.
[28] “USAID: 40% of total catch in PH in 2019 came from illegal fishing,” CNN Philippines, 10 March 2021, https://www.cnnphilippines.com/business/2021/3/10/usaid-40–of-total-catch-in-PH-in-2019-came-from-illegal-fishing.html.
[29] Gregory B. Poling, “Illuminating the South China Sea’s Dark Fishing Fleets”, CSIS, 09 January 2019, https://ocean.csis.org/spotlights/illuminating-the-south-china-seas-dark-fishing-fleets.
[30] For a regularly updated visualization of the data, see “Karagatan Patrol VIIRS Boat Detection,” www.karagatanpatrol.org
[31] Nestor Corrales, “Duterte: China can fish in Philippines’ EEZ”, 26 June 2019, INQUIRER.net, https://globalnation.inquirer.net/177040/duterte-china-can-fish-in-philippines-eez.
[32] Patricia Lourdes Viray, “Philippines taking legal action over China’s harvesting of Scarborough clams”, Philstar.com, 16 April 2019, https://www.philstar.com/headlines/2019/04/16/1910524/philippines-taking-legal-action-over-chinas-harvesting-scarborough-clams.
[33] Carmela Fonbuena, “Video captures China Coast Guard taking PH fishermen’s catch”, Rappler, 08 June 2018, https://www.rappler.com/nation/china-coast-guard-taking-filipino-fishermen-catch-scarborough-shoal-video.
[34] Christia Marie Ramos, “Philippines ‘taking legal action’ vs China over Scarborough clams,” INQUIRER.NET, 16 April 2019, https://globalnation.inquirer.net/174492/philippines-taking-legal-action-vs-china-over-scarborough-clams.
[35] Chiara Zambrano, “Chinese harvesting giant clams in Scarborough Shoal”, ABS-CBN News, 16 April 2019, https://news.abs-cbn.com/news/04/15/19/exclusive-chinese-harvesting-giant-clams-in-scarborough-shoal.
[36] Janvic Mateo and Alexis Romero, “Philippines can’t do anything drastic vs Chinese provocations -Palace,” Philippine Star, 21 April 2019, https://www.philstar.com/headlines/2019/04/21/1911217/philippines-cant-do-anything-drastic-vs-chinese-provocations.
[37] Statement: On the Presence of Chinese Vessels Near and Around Pag-asa, Department of Foreign Affairs of the Republic of the Philippines, 04 April 2019, https://dfa.gov.ph/dfa-news/statements-and-advisoriesupdate/21089-statement-on-the-presence-of-chinese-vessels-near-and-around-pag-asa.
[38] Raul Dancel, “Chinese vessel sinks Philippine fishing boat in contested waters; Manila seeks probe”, The Straits Times, 12 June 2019, https://www.straitstimes.com/asia/se-asia/chinese-vessel-sinks-filipino-fishing-boat-in-contested-waters-manila-seeks-probe.
[39] Jim Gomez, “Philippines backs Vietnam after China sinks fishing boat”, 08 April 2020, https://abcnews.go.com/International/wireStory/philippines-backs-vietnam-china-sinks-fishing-boat-70037606.
[40] Note Verbale from the Philippine Mission to the UN to the Secretary-General of the UN, 06 March 2020, https://www.un.org/Depts/los/clcs_new/submissions_files/mys_12_12_2019/2020_03_06_PHL_NV_UN_001.pdf.
[41] “Wary Philippines says 200 Chinese vessels at disputed reef”, The Asahi Shimbun, 21 March 2021, https://www.asahi.com/ajw/articles/14289026.
[42] “US, Philippines discuss Chinese ‘swarming’ in South China Sea”, Aljazeera, 01 April 2021, https://www.aljazeera.com/news/2021/4/1/us-philippines-discuss-chinese-swarming-in-south-china-sea.
[43] “Out in Force: Philippine South China Sea Patrols Are Way Up”, Asia Maritime Transparency Initiative, 26 May 2021, https://amti.csis.org/philippine-south-china-sea-patrols-are-way-up.
[44] “Philippines lodges new protests over Chinese Coast Guard ships in Panatag Shoal”, Philstar.com, 03 May 2021, https://www.philstar.com/headlines/2021/05/03/2095542/philippines-lodges-new-protests-over-chinese-coast-guard-ships-panatag-shoal.
[45] Christia Marie Ramos, “Marine protected areas in WPS a ‘great idea,’ says Locsin”, Inquirer.net, 24 April 2021, https://globalnation.inquirer.net/174768/marine-protected-areas-in-wps-a-great-idea-says-locsin#ixzz75Mf11Ujs.
[46] 18th Congress Senate Bill No. 2289 Philippine Maritime Zone Act, filed on June 7, 2021 by Sotto III, Vicente C., https://legacy.senate.gov.ph/lis/bill_res.aspx?congress=18&q=SBN-2289.
[47] “Duterte ‘reluctant’ to confront China over South China Sea row,” Aljazeera, 29 April 2021, https://www.aljazeera.com/news/2021/4/29/dutertes-mix-message-on-south-china-sea-dispute-draws-criticism; Neil Arwin Mercado, “‘No strings attached’ to China’s jabs donation, ‘except their boats are there’ -Duterte,” INQUIRER.NET, 17 August 2021, https://newsinfo.inquirer.net/1474547/no-strings-attached-in-chinas-jabs-donation-except-their-boats-are-there
[48] “Duterte said China pledged billions of dollars to the Philippines. What happened to it?”, Bangla News, 16 August 2021, https://www.banglanews24.com/english/international/news/bd/90971.details.
[49] Andreo Calonzo, “China Yet to Deliver Promised Billions Despite Duterte’s Pivot”, Bloomberg, 05 July 2021, https://www.bloomberg.com/news/articles/2021-07-04/duterte-s-pivot-to-china-yet-to-deliver-promised-billions-in-infrastructure.
[50] Louella Desiderio, “Greater private sector participation in infrastructure urged”, Philstar.com, 11 June 2020, https://www.philstar.com/business/2020/06/11/2020022/greater-private-sector-participation-infrastructure-urged.
[51] Andreo Calonzo, Op. cit.
[52] Angelica Garcia, “Duterte: Philippines’ arbitral win over China just paper fit to be thrown in trash”, GMA News, 06 May 2021, https://www.gmanetwork.com/news/news/nation/786404/duterte-philippines-arbitral-win-over-china-just-paper-fit-to-be-thrown-in-trash/story.
[53] Rodrigo Roa Duterte, Sixth State of the Nation Address, 26 July 2021, Official Gazette of the Republic of the Philippines, https://www.officialgazette.gov.ph/2021/07/26/rodrigo-roa-duterte-sixth-state-of-the-nation-address-july-26-2021.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2021/125 “The Quad and the Indo-Pacific: Going Slow to Go Further” by William Choong
EXECUTIVE SUMMARY
- In recent years, the Quadrilateral Security Grouping (Quad), and the ‘free and open’ Indo-Pacific concept that underpins it, have enjoyed forward momentum in response to growing Chinese assertiveness.
- The Quad has sought to gain traction in the Indo-Pacific, in particular among Southeast Asian countries, by stressing functional issues and tangibles, such as delivery of Covid-19 vaccines, climate change and emerging technologies.
- However, the Quad faces problems gaining support in the region as China remains adamantly opposed to any configuration perceived to curb its emergence while ASEAN fears that its centrality will be undermined by a minilateral arrangement helmed by external powers.
- The Quad member countries should adopt a lower-key strategy that avoids overt connections between the Quad and the imperative to counter China, and continue to build relationships with like-minded regional states outside the Quad framework.
* William Choong is Senior Fellow at ISEAS – Yusof Ishak Institute.
INTRODUCTION
Since its inception in the wake of the Indian Ocean earthquake and tsunami in 2004, the Quad has seen major ups and downs. Initially, Quad 1.0 sought to harness intrinsic similarities in its member democracies – Australia, Japan, India and the United States (US) – but Australia soon withdrew from the grouping for fear that its Quad membership would affect its relationship with China.
A decade later, however, the Quad, and the so-called Indo-Pacific strategy underpinning it, have regained momentum in response to growing Chinese assertiveness. It places emphasis on the principles of a free, open and inclusive order, restraint from the use of coercion, freedom of navigation and fostering of shared prosperity in the region. A virtual Quad leaders’ summit was held in March 2021, emphasising a list of deliverables that would be more amenable to ASEAN member states – vaccine delivery, climate change, and critical and emerging technologies. On 24 September 2021, US President Joseph Biden will meet his Quad counterparts in-person in Washington, indicating the grouping’s growing prominence in US foreign policy. The White House said the Quad leaders will continue to focus on the areas of practical cooperation highlighted at the March summit.[1]
There is growing regional cognisance of the threat posed by China, in particular in the maritime domain. This provides pockets of quiet support for the Quad in Southeast Asia. Still, the Quad faces difficulty in gaining widespread traction, and China remains vocal about its opposition to any arrangement perceived to curb its emergence. ASEAN also fears that its centrality will be undermined by a minilateral arrangement helmed by four extra-regional powers. This Perspective argues that going forward, the Quad will endure if it continues to maintain its course of delivering tangibles amenable to regional states. It would also help if its members adopt a lower-key strategy in promoting the Quad ‘brand’, while strengthening substantive relationships with ASEAN member states. This would enable stronger relationships with like-minded states without antagonising China.
FRAMING THE ‘CHINA CHALLENGE’ TO THE RULES-BASED ORDER
Within the Quad, there are different conceptualisations of Indo-Pacific in four main areas, namely the geographic scope of the ‘Indo-Pacific’, maritime security, connectivity and approach to China.[2] Japan and the US are more forthright in countering China. Australia, until very recently, had sought to balance its economic symbiosis with China against concerns about Beijing’s challenge to the rules-based order. India has stressed the inclusivity of the Indo-Pacific concept, avoiding any allusion that it is targeted at China.[3]
Starting from 2020, however, Australia and India have taken a harder turn towards Beijing. Sino-Australian ties are severely strained by China’s treatment of Uighur Muslims in Xinjiang, the rollback of democracy in Hong Kong, Chinese coercion in the South China Sea (SCS), tit-for-tat allegations of espionage and foreign meddling, and China’s trade punishment against key Australian exports.[4] On 15 September, Australia, the United Kingdom (UK) and the US announced the historic AUKUS deal, whereby London and Washington will work together to give Australia nuclear technology to power a new class of submarines. The pact is critical to Washington and Canberra’s attempts to manage China’s growing military footprint in the region.[5] India has also turned to more outspoken advocacy of the grouping, primarily due to Sino-Indian border clashes on the Doklam plateau in 2017 and in Ladakh in 2020.
Despite the growing convergence in views about the China challenge among the Quad countries, there remains a certain reticence in using the Quad as an overt instrument to counter China. This could possibly be due to concerns about China’s over-reaction. It could also reflect the Quad’s recognition that regional countries do not want to be forced to take sides between the US (and its Quad partners) and China. Speaking at the Shangri-La Dialogue in 2019, US Secretary of Defense James Mattis called for a ‘free and open Indo-Pacific’ but he did not use the term ‘Quad’. Similarly, the joint statement of the March 2021 Quad leaders’ summit stressed the need for a ‘free, open rules based order’, but there was no explicit mention of ‘China’ in the statement.[6] Speaking at the July 2021 Fullerton Lecture in Singapore, US Secretary of Defense Lloyd Austin singled out Chinese actions that Washington and its Quad partners deemed destabilising, but he did not mention the Quad as a direct counter to the perceived China challenge. By attenuating the connection between the Quad and China, Austin sought to avoid ‘over the top’ rhetoric that could play into Chinese attempts to cast the group as an ‘anti-China clique.’[7] During the AUKUS announcement on 15 September 2021, the White House emphasised that the partnership is ‘not aimed (at) or about any one country’ but was about upholding the ‘rules-based order’.[8]
The narrative about upholding ‘rules-based order’ started as early as 2013, when China’s terra-forming in the SCS started in earnest, and has since become the rallying cry for the revitalisation of the Quad.[9] The use of the terms ‘rules-based order’[10] and ‘Indo-Pacific’ spiked from 2016 onwards.[11] Arguably, there remains definitional wooliness about what it stands for. Retired Singaporean diplomat Bilahari Kausikan argues that ‘rules-based order’ is a ‘Rashomon term’, the meaning of which depends on the perspective of the user.[12] At the bottom, it can be argued that the four Quad members use ‘rules-based order’ and ‘Indo-Pacific strategy’ as omnibus terms for high principles such as human rights and dignity, the rule of law, freedom of the seas, the importance of international commitments and the peaceful settlement of disputes.
Among the four Quad nations, reference to these principles has turned out to be a nuanced and sophisticated way of voicing support for shared aspirations, without specifying the country of concern seen to be infringing such principles (i.e. China). Shinzo Abe, Japan’s former prime minister, did this adroitly. Speaking at the 2014 Shangri-La Dialogue, Abe stressed the importance of three ‘rule of law’ principles to prevail in the SCS territorial disputes: clarification of claims based on international law; avoidance of the use or threat of force in pursuing claims; and peaceful settlement of disputes.[13] Washington has adopted this approach. At the Fullerton Lecture, Lloyd Austin stressed that regional countries in the Indo-Pacific shared certain ‘common principles’ such as the rule of law, adherence to global commitments and the peaceful settlement of disputes. He added that the region had witnessed certain Chinese actions that did not ‘line up with … shared principles’. This included Beijing’s actions in the SCS, ‘aggression’ against India, coercion against Taiwan as well as ‘crimes against humanity’ against Uighur Muslims in Xinjiang.[14]
HOW THE QUAD CAN GAIN CURRENCY
Despite its forward momentum, the Quad is a tough sell to China and ASEAN. China is wary of any power configurations arrayed around its periphery (in particular, America’s formal alliances such as the one with Japan). In March 2018, Chinese foreign minister Wang Yi dismissed the Quad as an arrangement that would dissipate like ‘sea foam’.[15] Quite to the contrary, the Quad has gained prominence in recent years – what started as an officials-level meeting in 2017 will become an in-person leaders’ meeting in September 2021. The Quad’s forward momentum has led to a rethink in China. Chinese strategists now suggest that Beijing drive wedges between the Quad members. One way of doing so is to highlight the potency of multilateral arrangements that involve China but not the US. These include the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Trans Pacific Partnership (the precursor from which the US withdrew in 2017; and to which China has recently expressed a desire to join).[16]
In Southeast Asia, there is no ‘clear, consistent and coherent’ picture of the Quad – some appear to be sceptical of the grouping, while others partially welcome it.[17] In the 2021 State of Southeast Asia Survey, less than half the respondents deemed the Quad to have a ‘positive’ or ‘very positive’ contribution to regional security.[18] In another survey conducted by the Australian Strategic Policy Institute, nearly 40 per cent thought that Quad had more of a ‘diplomatic and symbolic value’ rather than being a ‘critical initiative’ for the region.[19] Part of this general ambivalence can be attributed to ASEAN’s concerns that the Quad would undermine ASEAN-led multilateral institutions.[20] The 2019 ASEAN Outlook on the Indo-Pacific could be seen as the grouping seeking to stamp its own imprimatur on evolving concepts of the Indo-Pacific – in particular, casting the region in a geographical frame focused on tangibles such as maritime security and connectivity, as opposed to casting it in a geopolitical frame to counter China.
Cognizant of ASEAN’s reservations, the US and other Quad members have sought to ‘soft sell’ the Quad concept to ASEAN. After all, buy-in by ASEAN, which represents a dynamic region with enormous economic potential, will be critical if the Quad’s Indo-Pacific strategy is to gain additional traction. All the Quad members have sought to emphasise their support for ASEAN centrality in the Indo-Pacific region. At the 2021 Fullerton Lecture, Austin went to lengths to address concerns about the Quad undermining ASEAN centrality. He reiterated ASEAN’s central role and went on to ‘applaud ASEAN for its efforts to end the tragic violence in Myanmar’ (despite ASEAN having been roundly criticised by others for its ineffective response to the political crisis in the country).
What the Quad has been doing correctly – and should continue to do — is to work with and for ASEAN, and not to use the grouping as an instrument to counter China. The joint statement of the March 2021 Quad summit not only reaffirmed support for ASEAN centrality but also sought to address the region’s needs, as seen in its plan to convene three working groups on vaccine delivery, climate change, and critical and emerging technologies. In July, Kurt Campbell, the Biden administration’s Indo-Pacific coordinator, said he expected the Quad to make decisive announcements on vaccine diplomacy and regional infrastructure when the grouping’s leaders meet in Washington later in 2021.[21] In the Fullerton Lecture, Austin went beyond framing US-Southeast Asia relations in the defence-security domain; instead he offered US deliverables to the region, such as 40 million Covid-19 vaccines throughout the Asia-Pacific, including for Indonesia, Laos, The Philippines, Malaysia, Thailand and Vietnam.[22]
By not over-emphasising geopolitics, the Quad members can help the grouping gain more traction in the region. To do so, they should avoid overt connections between the Quad and the challenges posed by China, and offer deliverables that are amicable to Southeast Asian countries. In August 2021, Edgard Kagan gave assurance that the Quad did not expect regional countries to ‘act against their own interests’, but is looking for partnerships in areas such as climate change, cyber security and handling the Covid-19 pandemic. The senior director at the US National Security Council further added that the Quad ‘does not have a letterhead’ or formal institutional mechanisms, but is driven by the search for ‘pragmatic solutions’.[23] These messages are certain to be welcomed by Southeast Asian states.
Deepening their economic engagement with Southeast Asia must be a central part of the Quad members’ Indo-Pacific strategy. While the US remains the single largest investor in ASEAN, with nearly US$330 billion in investment stock, it has become less important as a source of final demand for the region’s exports.[24] With its withdrawal from the Trans-Pacific Partnership in 2017, the US now sits outside two major regional trade deals: the RCEP and CPTPP. Cognizant of negative political sentiment at home towards mega trade deals, the Biden administration has expressed caution about joining the CPTPP. Instead, it has said that it is exploring a digital trade and services agreement in the Indo-Pacific. While this is an emerging area of regional standard setting, such a pact has a narrow focus and is unlikely to satisfy regional countries desiring greater economic engagement from Washington.[25]
In terms of infrastructure development, the Biden administration led the Group of Seven (G7) to launch the Build Back Better World (B3W) initiative in June 2021. Built on the Trump-era Blue Dot Network which involved the US, Japan and Australia, President Biden said that B3W would channel private sector capital into global projects. Compared to China’s Belt and Road Initiative, B3W would serve as a ‘more equitable way to provide for the needs around the world’.[26] It would focus on key areas such as climate, health, digital technology and gender equity. More importantly, it would represent the values of democracies and not the ‘autocratic lack of values’, Biden added. Details about B3W, however, remain vague for now.[27] The nagging problem is that Western governments have difficulty persuading private capital to flow into emerging-market infrastructure deals that will entail problems such as project delays, political interference, corruption and mismanagement, and uncertain financial returns.[28]
Another area in which the Quad will gain further traction is the provision of maritime security, particularly in the SCS. While there are ongoing negotiations between China and ASEAN for a Code of Conduct (COC) in the SCS, ASEAN has found no solution to Chinese assertiveness in the contested maritime area.[29] This is where the Quad, or the Quad working in tandem with like-minded partners, may prove itself useful. Assertions of freedom of navigation have a ‘use it or lose it’ quality – parties have to continually exercise such rights lest they be lost.[30] In November 2020, Australia – after an absence of 13 years – was re-admitted to the Malabar exercises with the Indian, Japanese and American navies. The 2021 Malabar exercises involved Australia again, with the four Quad navies operating together in the Philippines Sea to hone their skills in areas such as combined maritime operations, anti-submarine warfare operations and live gunnery sessions.[31]
It is worth noting that the Quad is seeking to expand its reach by exercising with like-minded navies. In April 2021, France joined the navies of the four Quad countries in the La Perouse maritime exercise in the Bay of Bengal. When Exercise Malabar 2021 was ongoing in late August, the British aircraft carrier HMS Queen Elizabeth held its first drill with the Japanese Self-Defense Forces off the coast of Okinawa. Similarly, the Indian Navy carried out a naval drill with the Philippines Navy in the disputed SCS just before Exercise Malabar.[32] Going forward, the Quad should continue to pursue minilateral cooperation with Southeast Asian states at the forefront of maritime disputes with China, such as The Philippines and Vietnam.[33]
CONCLUSION
The Quad was born with a built-in dilemma: the harder it pushes for its implementation in the region, the more it generates fear among Southeast Asian states and perceptions of threat from China; the less it pushes, the more it emboldens China to challenge what is essentially a US-led rules-based order in the region. Still, the Quad can afford to continue the route it has taken, that is, offering tangible deliverables to the region in the form of vaccine delivery, infrastructure assistance, emerging technologies, and maritime security. This will help in getting greater buy-in from ASEAN member states. In the meantime, the Quad can well depend on China’s assertiveness and even belligerence to foster what is essentially a growing wariness about Beijing. As Bilahari Kausikan has said, the Quad reflects a ‘growing concern’ among a diverse array of countries over Chinese behaviour, and Beijing has done more than the US itself to put together a ‘nascent anti-China coalition’.[34]
All four Quad members already enjoy good ties with Southeast Asian countries and have ‘deep footprints’ in the region.[35] Each of them should continue working on these linkages without pushing the ‘Quad’ label excessively. Japan, for example, is the most trusted external power among Southeast Asians, the fourth largest trading partner and the second biggest source of foreign direct investment for the region.[36] Japan has also increased its security ties with major Southeast Asian states. In September 2021, it inked an agreement with Vietnam which would enable exports of Japanese-made defence equipment and technology to Hanoi — a move seen to counter China’s growing assertiveness.[37] The same applies to the US, which in its March 2021 Interim National Security Guidance mentioned that Singapore, Vietnam and other ASEAN member states would help Washington implement its broader Indo-Pacific strategy.[38] During her August 2021 visit to Vietnam, Vice President Harris called on Hanoi to upgrade their comprehensive partnership to a strategic partnership. Without mentioning the Quad, she urged Hanoi to challenge Chinese coercion in the SCS.[39]
Going forward, one of the biggest challenges for the US is the need to articulate clear goals for its relationship with China and its desired strategic position in the Indo-Pacific. By extension, the same challenges apply to the Quad.[40] While the US and other Quad members have been able to emphasise tangible deliverables to ASEAN and the wider Indo-Pacific, these efforts are not divorced from the larger, and implicit, goal of challenging the threat posed by China. This is a reality that will continue to cause anxiety in the region. Washington and the Quad would need to provide reassurance that the re-assertion of US power and influence and the progress of the Quad will not escalate into confrontation and conflict with China. That, however, is a tall order.
ISEAS Perspective 2021/125, 23 September 2021
ENDNOTES
[1] White House, ’Statement by Press Secretary Jen Psaki on the Quad Leaders Summit’, 13 September 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/13/statement-by-press-secretary-jen-psaki-on-the-quad-leaders-summit/
[2] William Choong, ‘The Return of the Indo-Pacific Strategy: an Assessment,’ Australian Journal of International Affairs, 73:5, July 2019, pp. 417- 423.
[3] Ibid, p. 419.
[4] John Power, ‘Xi Jinping’s Foreign Policy Behind Worsening China-Australia Ties, Say Former PMs Malcolm Turnbull and Kevin Rudd’, South China Morning Post, 10 August 2021, https://www.scmp.com/week-asia/politics/article/3144561/xi-jinping-blame-worsening-china-australia-ties-say-former-pms
[5] Kathrin Hille, ‘US Military Extends Reach into China’s Backyard with Australia Security Pact’, Financial Times,18 September 2021, https://www.ft.com/content/540d9b20-123f-480d-9022-52d5c1f2361d
[6] Quad Leaders’ Joint Statement: ‘The Spirit of the Quad’ 12 March 2021,
[7] Joel Wuthnow, ‘China’s Shifting Attitude on the Indo-Pacific Quad’, War on the Rocks, 7 April 2021, https://warontherocks.com/2021/04/chinas-shifting-attitude-on-the-indo-pacific-quad/
[8] White House, ‘Background Press Call on AUKUS’, 15 September 2021, https://www.whitehouse.gov/briefing-room/press-briefings/2021/09/15/background-press-call-on-aukus/
[9] Choong, ‘The Return of the Indo-Pacific Strategy, pp 416 – 417.
[10] As tracked by the Google Ngrams search engine in books printed up to 2019. See https://interactives.lowyinstitute.org/features/rules-based-order/
[11] At the Shangri-La Dialogue, an annual gathering of defence ministers and officials in Singapore, use of the ‘Indo-Pacific’ term rose from five mentions in 2017, to 92 and 61 instances in 2018 and 2019 respectively. See International Institute for Strategic Studies (IISS), Reports of the IISS Shangri-La Dialogue (2017, 2018 and 2019), London: IISS.
[12] For Singapore and other ASEAN states, the emphasis is placed on the trade-economic aspects and less so on the political-security aspects; Australia and Japan would put equal emphasis on both aspects, and are ‘not entirely comfortable’ with the Trump administration’s interpretation of the political-security aspects as ‘hard containment’ of Beijing. See https://asialink.unimelb.edu.au/insights/what-and-whose-rules-based-order-rbo
[13] Shinzo Abe, “The 13th Asia Security Summit: the Shangri-La Dialogue Keynote Address,” 30 May 2014, https://www.mofa.go.jp/fp/nsp/page4e_000086.html
[14] US Department of Defense, ‘Secretary of Defense Lloyd J. Austin III Participates in Fullerton Lecture Series in Singapore,’ 27 July 2021, https://www.defense.gov/Newsroom/Transcripts/Transcript/Article/2711025/secretary-of-defense-lloyd-j-austin-iii-participates-in-fullerton-lecture-serie/
[15] Ministry of Foreign Affairs of the People’s Republic of China, ‘Foreign Minister Wang Yi Meets the Press’, 9 March 2018, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1540928.shtml
[16] Wuthnow, ‘China’s Shifting Attitude’.
[17] Evan A. Laksmana, ‘Whose Centrality? ASEAN and the Quad in the Indo-Pacific’, The Journal of Indo-Pacific Affairs 3:5, 22 December 2020, https://poseidon01.ssrn.com/delivery.php?ID=686112110110065117126031087000072117041064093064074050004007127102127127098112125089057097038029010061121125028120121087011090024002094022065085065092064099009123007064048071008120068007022005088083001016090116097016011004124025024013108125122111065102&EXT=pdf&INDEX=TRUE
[18] Tang Siew Mun et al, ‘The State of Southeast Asia 2020,’ Singapore: ISEAS – Yusof Ishak Institute, 2020, /images/pdf/TheStateofSEASurveyReport_2020.pdf, p. 33.
[19] Huong Le Thu, ‘Special Report: Southeast Asian Perceptions of the Quadrilateral Security Dialogue’, Australian Strategic Policy Institute, October 2018, https://s3-ap-southeast-2.amazonaws.com/ad-aspi/2018-10/SR%20130%20Quadrilateral%20security%20dialogue.pdf, p. 11.
[20] Laksmana, ‘Whose Centrality?’ p. 108.
[21] Ken Moriyasu, ‘US Does Not Support Taiwan Independence: Kurt Campbell’, Nikkei Asia, 7 July 2021, https://asia.nikkei.com/Politics/International-relations/Biden-s-Asia-policy/US-does-not-support-Taiwan-independence-Kurt-Campbell
[22] William Choong, Hoang Thi Ha, Le Hong Hiep and Ian Storey, ‘US Secretary of Defense Lloyd Austin’s Southeast Asia Tour Assurances and Dividends’, 5 August 2021, /articles-commentaries/iseas-perspective/2021-103-us-secretary-of-defense-lloyd-austins-southeast-asia-tour-assurances-and-dividends-by-william-choong-hoang-thi-ha-le-hong-hiep-and-ian-storey/, pp. 3 – 4.
[23] Panel Discussion Involving Senior Officials of the US Delegation to Singapore, 24 August 2021.
[24] Ashley Townshend, Susannah Patton, Tom Corben and Toby Warden, ‘Correcting the Course: How the Biden Administration Should Compete for Influence in the Indo-Pacific’, United States Studies Centre, 27 August 2021, https://www.ussc.edu.au/analysis/correcting-the-course-how-the-biden-administration-should-compete-for-influence-in-the-indo-pacific, p. 19.
[25] ibid.
[26] White House, ‘Remarks by President Biden in Press Conference,’ 13 June 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/06/13/remarks-by-president-biden-in-press-conference-2/
[27] South China Morning Post, ‘G7 Adopt ‘Build Back Better World’ Plan to Rival China’s Belt and Road Strategy’, 12 June 2021, https://www.scmp.com/news/world/europe/article/3137097/g7-leaders-adopt-build-back-better-world-plan-rival-chinas-belt
[28] James Crabtree, ‘Competing with the BRI: The West’s Uphill Task’, Survival, 27 July 2021, https://www.tandfonline.com/doi/abs/10.1080/00396338.2021.1956189, p. 84.
[29] William Choong, ‘Why the Quad Will Endure’, 13 April 2021, https://www.9dashline.com/article/why-the-quad-will-endure
[30] William Choong, ‘South China Sea: Bringing Power to Bear’, IISS Analysis, 5 June 2021, https://www.iiss.org/blogs/analysis/2018/06/south-china-sea-power
[31] US Embassy in India, ‘Australia, India, Japan and US Kickoff Exercise Malabar 2021’, 26 August 2021, https://in.usembassy.gov/australia-india-japan-and-u-s-kick-off-exercise-malabar-2021/
[32] Kunal Purohit, ‘India Steps Up Maritime Presence in Asia-Pacific — Just as US and China Conduct Separate Exercises’, South China Morning Post, 5 August 2021, https://www.scmp.com/week-asia/politics/article/3143996/india-steps-maritime-presence-asia-pacific-just-us-and-china?module=inline&pgtype=article
[33] Choong, ‘Why the Quad Will Endure’.
[34] The Economist, “Naval Drills in the Indian Ocean Give Bite to the anti-China ‘Quad’,” 17 November 2020, https://www.economist.com/international/2020/11/17/naval-drills-in-the-indian-ocean-give-bite-to-the-anti-china-quad
[35] Ivy Kwek, ‘The Quad’s Uneasy Place in Southeast Asia’, Lowy Interpreter, 14 April 2021, https://www.lowyinstitute.org/the-interpreter/quad-s-uneasy-place-southeast-asia
[36] William Choong, ‘Japan’s Indo-Pacific Strategy in Southeast Asia: Floundering, not Foundering’, 6 May 2020, /wp-content/uploads/2020/03/ISEAS_Perspective_2020_40.pdf, p. 2.
[37] Nikkei Asia, ‘Japan Inks Deal to Export Defense Assets to Vietnam Amid China Worry’, 11 September 2021, https://asia.nikkei.com/Politics/International-relations/Japan-inks-deal-to-export-defense-assets-to-Vietnam-amid-China-worry
[38] Hoang Thi Ha, ‘Biden’s Foreign Policy to Southeast Asia: More Pragmatism Than Ideology’, Fulcrum, 17 August 2021, https://fulcrum.sg/bidens-foreign-policy-to-southeast-asia-more-pragmatism-than-ideology/
[39] Bac Pham and Bennett Murray, ‘US VP Harris Seeks Strategic Upgrade to Vietnam Ties, Calls for Pressure Against Beijing in South China Sea’, South China Morning Post, 25 August 2021, https://www.scmp.com/week-asia/politics/article/3146356/us-vp-harris-seeks-strategic-upgrade-vietnam-ties-calls-pressure
[40] Townshend et al, ‘Correcting the Course’.
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2021/124 “Wang Yi’s Visit to Vietnam: Reasserting Influence, Regaining Balance” by Hoang Thi Ha and Le Hong Hiep
EXECUTIVE SUMMARY
- Chinese Foreign Minister Wang Yi paid an official visit to Vietnam on 10-12 September as part of Beijing’s efforts to reassert its influence on Vietnam and pull Hanoi back from its perceived ‘tilt’ towards Washington.
- Wang Yi emphasised the ideological affinity between the two countries, stepped up China’s vaccine diplomacy, and warned Vietnam about external interferences in the South China Sea.
- Hosting Wang Yi provided Vietnam with an opportunity to address existing issues in bilateral relations and certain domestic concerns, especially to secure China’s support for the Covid-19 response.
- Over the past year, bilateral ties seem to have enjoyed a rare respite from tensions in the South China Sea, and Wang Yi’s visit could add to this renewed momentum in the improvement of bilateral relations.
- However, Vietnam-China relations are fundamentally constrained by strategic distrust over the South China Sea dispute. The intensifying China-US strategic competition is another challenge for Hanoi.
- While Hanoi continues to nurture ties with both China and the US, and insists not to take sides, it needs to also think forward and be prepared to make tough choices on relevant issues in the future.
* Hoang Thi Ha is Fellow and Co-coordinator of the Regional Strategic and Political Studies Programme, and Le Hong Hiep is Senior Fellow and Coordinator of the Vietnam Studies Programme at ISEAS – Yusof Ishak Institute.
INTRODUCTION
Chinese Foreign Minister Wang Yi paid an official visit to Vietnam on 10-12 September as part of his East Asia tour that also included stops in Singapore, Cambodia and the Republic of Korea. During his visit, he co-chaired the 13th Meeting of the Steering Committee for Bilateral Cooperation with Vietnam’s Deputy Prime Minister Pham Binh Minh, and met with Communist Party of Vietnam (CPV) General Secretary Nguyen Phu Trong and Prime Minister Pham Minh Chinh.
Wang Yi had paid official visits to all Southeast Asian states last year and early this year, except Vietnam.[1] Hanoi’s absence in Chinese leaders’ regional tours in the last two years was even more conspicuous given that Vietnam was the ASEAN Chair in 2020. During the same period, Hanoi hosted high-level visits by Japanese Prime Minister Suga and many cabinet members of the Trump administration.[2] Under Biden, the US continues to accord high priority to Vietnam in its Southeast Asia policy, as manifested in the Interim National Security Strategic Guidance,[3] and especially the two high-profile visits by Secretary of Defense Lloyd Austin and Vice President Kamala Harris in July and August 2021, respectively.
Wang Yi’s three-day visit to Hanoi, as compared to his shorter stops in Cambodia and Singapore, suggests Beijing’s imperative to make its presence felt in Vietnam. Why so and why now? How did the US factor weigh in China’s calculations towards Hanoi during this trip? This Perspective answers these questions by examining China’s motivation and messaging during the visit. It also discusses Hanoi’s statecraft in achieving its practical agenda from the visit while maintaining its balancing act between the great powers.
CHINA’S MOTIVATION AND MESSAGE: REASSERTING INFLUENCE
The Global Times ran an op-ed on 12 September titled “Wang Yi’s visit to neighbours expected to improve cooperation, not to counter US influence”.[4] In fact, improving China’s neighbourly relations and countering US influence should be mutually reinforcing from Beijing’s perspective. Vietnam remains a key partner for China in Southeast Asia. Both countries are putatively ideological allies; and Vietnam is currently China’s largest trading partner in ASEAN[5] and its sixth largest trading partner globally, with two-way trade turnover reaching US$133.09 billion in 2020.[6] At the same time, as an immediate neighbour to China, Vietnam’s defence policy and its positioning between China and America is critical to China’s security.
The fact that Wang Yi’s trip took place just two weeks after US Vice President Kamala Harris’ visit to Hanoi suggests the imperative for China to reassert its influence on Vietnam in the wake of perceptions about Hanoi’s ‘tilt’ towards Washington, which might have been amplified by high-level American visits. China’s sense of urgency has heightened in the context of increasing US-China strategic competition under the Biden administration, and advances in Vietnam-US relations. Wang’s priorities for his visit were: (i) Emphasising the ideological affinity; (ii) Stepping up vaccine diplomacy; and (iii) Warning on the South China Sea (SCS).
Emphasising the ideological factor
China defines its relations with Vietnam not only as “neighbouring states” but also as “comrades and brothers” anchored in ideological affinity and historical linkages. The Chinese leadership claims privilege in having a special conduit of leverage over Hanoi through party-to-party ties between the Communist Party of China (CPC) and the CPV. The CPC’s 100th anniversary and the CPV’s 13th National Congress this year provided a good context for Wang Yi’s emphasis on the two countries’ shared socialist ideology and political system during his visit. The news release of Wang Yi’s meeting with Pham Minh Chinh on the Chinese foreign ministry’s website said: “As both states are socialist countries led by the Communist Parties, reinforcing and revitalising socialist causes is the top priority in bilateral relations and the most significant and fundamental common strategic interests that both countries should insist on.”[7] The ideological tone was even more pronounced during Wang Yi’s meeting with party chief Nguyen Phu Trong: “China appreciates that General Secretary Nguyen Phu Trong published a signed article after the end of the 13th National Congress of the CPV, emphasising the inevitability and correctness of Vietnam’s adherence to the socialist path, which is of great significance for Vietnam to overcome various risks and challenges.”[8]
However, ideology was not on top of the mind of Vietnamese leaders during their exchanges with Wang Yi, judging from what was reported in Vietnamese media. The coverage of Wang Yi’s meeting with Pham Minh Chinh on the Vietnamese government’s online portal highlighted bilateral issues ranging from Covid-19 response and border trade to the SCS disputes, but contained hardly any ideological element.[9] The news release on the CPV’s online portal about Wang Yi’s meeting with Nguyen Phu Trong was also much less ideologically laden than the Chinese version. Trong was quoted as emphasising the need to “enhance high-level bilateral exchanges to promote friendship and political trust, improve the effectiveness of party-to-party cooperation mechanisms, and exchange of experiences in Party building and country governance”.[10]
Some commentators have noted that Trong’s meeting with Wang Yi – and highlighting that he did not meet Kamala Harris – indicates Vietnam’s unequal treatment of Beijing and Washington.[11] That reading is overstretched, given the absence of party links between America and Vietnam. In 2018, Trong did meet then-Secretary of State Mike Pompeo when he visited Hanoi. With Washington’s repeated commitments to respect Vietnam’s political system and its pragmatic approach towards Hanoi, US-Vietnam bilateral ties are increasingly defined by their converging security and economic interests rather than by ideological considerations. While the US-China rivalry has taken on stronger ideological overtones, Vietnam-US relationship continues on its upward trend regardless of ideological differences, suggesting diverging trajectories of US-China and US-Vietnam relations in the years ahead.
Stepping up vaccine diplomacy
Southeast Asia is a primary target of China’s vaccine diplomacy, accounting for 29% of its total vaccine donations and over 25% of its vaccine sales worldwide by June 2021.[12] Despite being the first-mover in vaccine offerings to other Southeast Asian countries, China’s vaccine outreach towards Vietnam got a fairly late start. In June, China donated 700,000 Sinopharm doses to Vietnam, and in August pledged two million more free doses. Chinese Ambassador to Vietnam Xiong Bo made this pledge just one day before Kamala Harris’ visit – a calibrated move to one-up the US, which donated one million Moderna doses during Harris’ trip to Hanoi.[13] Vietnam is among the top recipients of US vaccine donations, with 6 million doses by end-August 2021.[14]
Until mid-2021, Hanoi had not been enthusiastic about approaching China for vaccine support due to the prevalent distrust of Chinese vaccines among the Vietnamese public and concerns about their relatively lower efficacy.[15] However, by the time of Wang Yi’s visit, the Covid-19 situation had taken a tragic turn with massive spikes across Southern Vietnam, and the country was trying to secure any source of vaccine supply available. This provided a strategic window for China to extend its Covid-19 response support to Vietnam and play catch-up with Washington’s vaccine diplomacy in the country.
During his visit, Wang Yi announced Beijing’s donation of three more million doses to Vietnam. Three days later, China’s Guangxi province offered 800,000 Sinopharm doses together with medical equipment and supplies. This brings China’s total pledged vaccine donation to Vietnam to 6.5 million doses, exceeding that from the US. However, up to now, the Vietnamese government has not made any official deal to buy Chinese vaccines, except for the purchase of 13 million Sinopharm doses by a private company. The share of Chinese-made vaccines in Vietnam’s vaccine portfolio remains modest in terms of both purchase and donation.
Warning on the South China Sea
The sovereignty and maritime disputes in the SCS cast a long shadow on Vietnam-China relations, and there is little room for each party to moderate their respective positions and claims in order to reach a settlement. It is the single most important issue that drives Hanoi’s estrangement from Beijing. According to the State of Southeast Asia Survey 2021 by ISEAS –Yusof Ishak Institute, among Southeast Asians, Vietnamese are the most apprehensive about Chinese actions and the most welcoming to increased military presence by the United States and other powers in the SCS.
The SCS has become a key theatre of the Indo-Pacific geopolitical contest, with higher density and frequency of all major powers’ naval presence. Before and around the time of Wang Yi’s visit, the UK’s Carrier Strike Group-21 (CSG-21) had transited the SCS,[16] and the US’ Carl Vinson Carrier Strike Group (VINCSG) was still undertaking freedom of navigation operations in the area.[17] The CSG-21 and VINCSG, together with four other task groups from the US, Australia, Japan and India, are currently on their operational deployments in the Indo-Pacific to participate in a series of multilateral exercises, sending a clear deterrent signal to China’s maritime ambitions.[18] Notably, one of these task groups, the Australian Defense Force Indo-Pacific Endeavour 21 (IPE 21) is currently at Vietnam’s Cam Ranh Bay for a four-day visit.[19]
Such a crowded maritime domain set the stage for Wang Yi to urge Vietnam to “be alert in resisting interference and incitement from regional outsiders”, “treasure the hard-won peace and stability in the SCS”, and “not to complicate the conditions or magnify conflicts from unilateral moves”. While this talking point is not new, there was added urgency and fervency to the tone. It was as much a warning to Vietnam as a swipe at Kamala Harris’ call on Vietnam to join Washington in opposing China’s “bullying”.[20]
VIETNAM’S STATECRAFT: PRACTICAL AGENDA AND STRATEGIC HEDGING
On its part, hosting Wang Yi provided Vietnam with an opportunity to push its own agendas, including boosting ties with China, promoting practical cooperation to address its domestic concerns and existing issues in bilateral relations, and maintaining its strategic balance between the US and China.
Improving ties with China
Vietnam wanted to use Wang Yi’s visit to boost its ties with China, given that bilateral exchanges had been rather limited in 2020 despite it being the 70th anniversary of bilateral diplomatic relations. There was no direct meeting between the two countries’ high-level leaders throughout 2020. Not only Wang Yi but also Chinese Defence Minister Wei Fenghe and CPC foreign affairs chief Yang Jiechi skipped Vietnam in their regional tours. There were three main reasons for this: Covid-19 restrictions; differences on the SCS dispute;[22] and Vietnam’s preoccupation with the organisation of the CPV’s 13th National Congress.
China’s direct high-level engagements with Vietnam only resumed after the CPV’s 13th Congress concluded, with the visit by Chinese Minister of Public Security Zhao Kezhi in February followed by a visit by Minister of Defence Wei Fenghe in April. Wang Yi’s visit therefore provided Hanoi with another chance to continue its high-level engagements with Beijing, and to signal to China that Vietnam values its relationship with Beijing despite its frequency of exchanges with the US and its allies. Vietnamese leaders apparently tried to show Vietnam’s appreciation of bilateral ties by arranging for Wang Yi to be received by both General Secretary Nguyen Phu Trong and Prime Minister Pham Minh Chinh, in addition to his meetings with Deputy Prime Minister Pham Binh Minh and Foreign Minister Bui Thanh Son.
Promoting practical cooperation
Wang Yi’s visit also provided Vietnam with an opportunity to address its domestic concerns as well as existing issues in bilateral relations. Due to the latest surge of Covid-19 infections, Vietnam’s current top priority is to speed up its vaccination programme to contain the virus and facilitate economic reopening. The three more million vaccine doses pledged by Wang Yi, once delivered, will contribute to Vietnam’s vaccination drive. Vietnam’s aim is to inoculate up to 70% of its population by this year-end. On 10 September, the first day of Wang Yi’s visit, Vietnam’s Ministry of Health approved Hayat-Vax, a vaccine jointly produced by Sinopharm and G42 of the United Arab Emirates (UAE), for emergency use, suggesting that Hayat-Vax may be the vaccine donated by China. During Wang Yi’s visit, news of Hanoi using Sinopharm’s Vero Cell vaccine to inoculate its population was reported prominently by the local media.[23]
Other issues addressed during Wang Yi’s meetings with Vietnamese leaders included trade, infrastructure development and the SCS dispute. Vietnam is interested in maintaining stable trade flows and preventing any disruptions in the supply chain between the two countries; it also wants China to facilitate the import of Vietnamese agricultural products and help bring about a more balanced structure in bilateral trade. In terms of infrastructure development cooperation, Vietnam asked Beijing to bring the delayed Cat Linh-Ha Dong metro project in Hanoi and some other projects funded by Chinese loans into operation as early as possible.[24]
On the SCS issue, over the past twelve months, China has adopted a less aggressive approach towards Vietnam, with no major intrusion into Vietnamese waters being reported. This is notable given that Chinese intrusions and provocations in the waters of the Philippines, Indonesia and Malaysia have increased during the same period. However, this is likely a temporary lull, and Vietnam needs to work with China to manage future tensions and address remaining issues. For example, bilateral negotiations on the delimitation of the waters outside the mouth of the Tonkin Gulf have been stalled for years, while the Vietnam-China agreement on fishery cooperation in the Tonkin Gulf, which expired on 30 June 2020, has not been renewed. Wang Yi’s visit and direct meetings between the two delegations may help untangle these issues in a more efficient manner.
Strategic balance and hedging
Hanoi is keenly aware of China’s strategic anxiety with regard to the strengthening of Vietnam-US ties. Wang Yi’s visit was therefore an occasion for Vietnam to assure China of its non-aligned foreign policy. In response to China’s repeated incursions into Vietnam’s maritime zones in the SCS, Hanoi has been expanding security ties with the US and its allies, but is nevertheless still keen to maintain a balance between the two big powers. Hanoi’s reluctance to upgrade its relationship with Washington to the strategic partnership level despite the latter’s repeated requests[25] is an indication of Hanoi’s sensitivity to Beijing’s concerns.
That said, the brewing SCS dispute and the Vietnamese public’s longstanding distrust of China prompt the country to be cautious in its relations with Beijing. This means that while maintaining a stable, friendly and mutually beneficial relationship with China, Hanoi will continue to deepen ties with the US and its allies and partners to hedge against China’s behaviours. This was evident in Vietnam’s diplomatic activities before and during Wang Yi’s visit. Vietnam hosted defence secretaries of the US and the UK in July, and US Vice President in August. Most notably, Japanese Defence Minister Nobuo Kishi visited Vietnam on the same dates as Wang Yi. During Kishi’s visit, Vietnam and Japan signed an agreement on defence equipment and technology transfer, and announced plans to sign memorandums in military medicine and cybersecurity. The two sides also stated that they would bring their defence collaboration to a “new level”, moving beyond the bilateral scope to actively contribute to the peace and stability of the region and the international community.[26] Hosting Wang Yi and Nobuo Kishi concurrently suggests Vietnam’s conscious efforts to diversify its relations and maintain a strategic balance between the US, China and other major powers.
CONCLUSION
Over the past decade, Vietnam-China relations have gone through major ups and downs. Over the past year, with Beijing adopting a less aggressive stance towards Hanoi in the SCS, bilateral ties enjoyed a rare respite from tensions, and Wang Yi’s visit could add to this renewed momentum in the improvement of bilateral relations. That said, Vietnam-China relations are fundamentally constrained by strategic distrust over the SCS dispute. As soon as China resumes its incursions into Vietnamese waters, which can happen any time, the current trend of improvement in bilateral ties will reverse.
The intensifying China-US strategic competition is another challenge for Hanoi. Vietnam has so far been adroit in maintaining a balance between the two great powers but it may not be easy to sustain this going forward. If Washington and Beijing fail to get what they want from Hanoi, they may decide that it is not worthwhile to continue investing in their ties with Vietnam. As such, while Hanoi continues to nurture ties with both China and the US, it should also think forward and be prepared to make tough choices on certain specific issues in the future. These include, among others, continuation of hydrocarbon projects in its EEZ despite Chinese warnings and obstructions, response to the Quad’s overtures and US maritime initiatives such as the proposed Joint Statement of Maritime Principles for the Western Pacific,[27] and upgrading of ties with America to strategic partnership. More than ever, Vietnam’s foreign policy mantra, “firm in objectives, flexible in strategies and tactics”, is being put to test.
ISEAS Perspective 2021/124, 22 September 2021
ENDNOTES
[1] In October 2020, Wang Yi visited Cambodia, Laos, Thailand and Malaysia. In January 2021, he visited Brunei, Indonesia, Myanmar and the Philippines. Wang Yi met with Pham Binh Minh in the border province of Quang Ninh (Vietnam) in August 2020 to celebrate the 20th anniversary of the Vietnam-China land border treaty signing, but this event is not considered “an official visit”. See “Vietnam, China celebrate 20th anniversary of land border treaty signing”, Vietnamplus.vn,, 24 August 2020, https://en.vietnamplus.vn/vietnam-china-celebrate-20th-anniversary-of-land-border-treaty-signing/181767.vnp.
[2] These included the visits by Defence Secretary Mark Esper (November 2019), Secretary of State Mike Pompeo (October 2020) and National Security Adviser Robert O’Brien (November 2020).
[3] The White House, Interim National Security Strategic Guidance, 03 March 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/03/interim-national-security-strategic-guidance/.
[4] Xu Keyue and Zhang Dan, “Wang Yi’s visit to neighbors expected to improve cooperation, not to counter US influence”, The Global Times, 12 September 2021,https://www.globaltimes.cn/page/202109/1234043.shtml.
[5] “Vietnam becomes China’s largest trade partner in ASEAN: Chinese diplomat”, Nhan Dan Online, 26 July 2018, https://en.nhandan.vn/business/item/6428702-vietnam-becomes-china%E2%80%99s-largest-trade-partner-in-asean-chinese-diplomat.html.
[6] “Vietnam becomes China’s sixth largest trading partner”, Nhan Dan Online, 19 January 2021, https://en.nhandan.vn/business/item/9513202-vietnam-becomes-china%E2%80%99s-sixth-largest-trading-partner.html.
[7] Ministry of Foreign Affairs of the People’s Republic of China, “Vietnamese Prime Minister Pham Minh Chinh Meets with Wang Yi”, 12 September 2021, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1906432.shtml.
[8] Ministry of Foreign Affairs of the People’s Republic of China, “General Secretary of the Communist Party of Vietnam Central Committee Nguyen Phu Trong Meets with Wang Yi”, 11 September 2021, https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/wshd_665389/t1906423.shtml.
[9] “Thủ tướng Phạm Minh Chính tiếp Ủy viên Quốc vụ, Bộ trưởng Ngoại giao Trung Quốc”, baochinhphu.vn, 11 September 2021, http://baochinhphu.vn/Thoi-su/Thu-tuong-Pham-Minh-Chinh-tiep-Uy-vien-Quoc-vu-Bo-truong-Ngoai-giao-Trung-Quoc/446179.vgp.
[10] “Tổng Bí thư Nguyễn Phú Trọng tiếp Ủy viên Quốc vụ, Bộ trưởng Bộ Ngoại giao Trung Quốc”, dangcongsan.vn, 11 September 2021, https://dangcongsan.vn/thoi-su/tong-bi-thu-nguyen-phu-trong-tiep-uy-vien-quoc-vu-bo-truong-bo-ngoai-giao-trung-quoc-590720.html.
[11] “Ngoại giao Việt Nam ‘khôn khéo trước mọi đại cường’?”, BBC Tiếng Việt, 15 September 2021, https://www.bbc.com/vietnamese/vietnam-58559819.
[12] Khairulanwar Zaini, “China’s Vaccine Diplomacy in Southeast Asia – A Mixed Record”, ISEAS Perspective 2021/86 , 24 June 2021, /articles-commentaries/iseas-perspective/2021-86-chinas-vaccine-diplomacy-in-southeast-asia-a-mixed-record-by-khairulanwar-zaini/.
[13] John Haltiwanger, “Kamala Harris was en route to Vietnam to donate 1 million COVID-19 vaccines when China swooped in to one-up the US and offered 2 million shots”, businessinsider.com, 25August 2021, https://www.businessinsider.com/china-undercuts-kamala-harris-1-million-vaccine-donation-to-vietnam-2021-8.
[14] The White House, Remarks by Vice President Harris at the National Institute of Hygiene and Epidemiology in Hanoi, Vietnam, 25 August 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/08/26/remarks-by-vice-president-harris-at-the-national-institute-of-hygiene-and-epidemiology-in-hanoi-vietnam/.
[15] Hoang Thi Ha, “A Tale of Two Vaccines in Vietnam”, Fulcrum, 12 July 2021, https://fulcrum.sg/a-tale-of-two-vaccines-in-vietnam/.
[16] Latit Kapur, “Britain’s Return to the Indo-Pacific”, AMTI Update, 11 August 2021, https://amti.csis.org/britains-return-to-the-indo-pacific/.
[17] “Carl Vinson Carrier Strike Group Enters South China Sea”, pacom.mil, 08 September 2021, https://www.pacom.mil/Media/News/News-Article-View/Article/2768009/carl-vinson-carrier-strike-group-enters-south-china-sea/.
[18] Dzirhan Mahadzir, “6 Naval Task Groups From U.S., U.K., India, Japan and Australia Underway in Pacific”, USNI News, 30 August 2021, https://news.usni.org/2021/08/30/6-naval-task-groups-from-u-s-u-k-india-japan-and-australia-underway-in-pacific.
[19] “Nhóm tàu tác chiến Australia thăm Việt Nam”, Vietnamnet, 20 September 2021, https://vietnamnet.vn/vn/the-gioi/viet-nam-va-the-gioi/nhom-tau-tac-chien-australia-tham-viet-nam-776519.html.
[20] The White House, Remarks by Vice President Harris and President Phúc of the Socialist Republic of Vietnam in Hanoi, Vietnam, 24 August 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/08/24/remarks-by-vice-president-harris-and-president-phuc-of-the-socialist-republic-of-vietnam-in-hanoi-vietnam/.
[21] Sharon Seah et al., The State of Southeast Asia: 2021 (Singapore: ISEAS-Yusof Ishak Institute, 2021), /wp-content/uploads/2021/01/The-State-of-SEA-2021-v2.pdf.
[22] For example, due to China’s pressures, PetroVietnam cancelled production sharing contracts with Spanish firm Repsol in June 2020 and a drilling contract with Noble Corporation the following month. Both cases caused significant financial losses for Vietnam. See Le Hong Hiep, Vietnam: Managing Chinese Pressures around Vanguard Bank, ISEAS Commentary (2020/100), 23 July 2020, /media/commentaries/vietnam-managing-chinese-pressures-around-vanguard-bank/.
[23] See, for example, “Hà Nội tiếp nhận 1 triệu liều vaccine Vero Cell”, VnExpress, 9 September 2021, https://vnexpress.net/ha-noi-tiep-nhan-1-trieu-lieu-vaccine-vero-cell-4353544.html; “Cận cảnh người dân Hà Nội tiêm vắc-xin Vero Cell”, Nguoi Lao Dong, 11 September 2021, https://nld.com.vn/thoi-su/can-canh-nguoi-dan-ha-noi-tiem-vac-xin-vero-cell-20210910123856004.htm.
[24] “Bộ trưởng Ngoại giao Bùi Thanh Sơn hội đàm với Bộ trưởng Ngoại giao Trung Quốc Vương Nghị”, Vietnam Government Portal, 11 September 2021, http://baochinhphu.vn/Doi-ngoai/Bo-truong-Ngoai-giao-Bui-Thanh-Son-hoi-dam-voi-Bo-truong-Ngoai-giao-Trung-Quoc-Vuong-Nghi/446182.vgp
[25] “US V-P Kamala Harris urges more China pressure in meeting with Vietnam leader”, The Straits Times, 26 August 2021, https://www.straitstimes.com/world/united-states/us-to-offer-vietnam-more-covid-19-vaccine-help-as-kamala-harris-visits.
[26] Prashanth Parameswaran, “What’s in the Newly Regionalized Japan-Vietnam Defense Partnership?”, The Diplomat, 13 September 2021, https://thediplomat.com/2021/09/whats-in-the-newly-regionalized-japan-vietnam-defense-partnership/.
[27] The White House, Remarks by Vice President Harris and President Phúc of the Socialist Republic of Vietnam in Hanoi, Vietnam, 24 August 2021, op. cit.
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2021/123 “The Second Amendment to Papua’s Special Autonomy Law and the Recentralization of Power to Jakarta” by Made Supriatma
EXECUTIVE SUMMARY
- A second amendment comprising 20 revisions to Papua’s Special Autonomy Law was passed by the Indonesian Parliament on 15 July 2021, and signed by President Jokowi into law a week later.
- This was done without consultation with representatives of the Papuan people, contrary to the requirement under that same law. The People’s Representative Council (DPRP) and the Papuan People’s Assembly (MRP) subsequently sued the central government and national parliament (DPR) in the Constitutional Court.
- The most significant revisions concerned the issues of special autonomy funds, the proliferation (pemekaran) of local government, and the abolition of local political parties. While the central government has argued that the changes were needed to ensure accountability and improve delivery of public goods and services, the Papuans are clearly unhappy with the shrinking power of representative institutions for indigenous Papuans such as the DPRP and the MRP, as well as the recentralization of fiscal power and control over administrative regions. The Papuans fear that the expansion of local administrative structures could lead to an influx of non-Papuan bureaucrats due to the shortage of skilled manpower in Papua.
- There is a risk of more civil unrest and possibly violence in Papua when the government proceeds to implement the revisions to the Special Autonomy Law. A civil society organization claimed to have garnered 714,000 signatures and the support of 112 Papuan groups in opposition to the amendment.
* Made Supriatma is Visiting Fellow with the Indonesia Studies Programme at ISEAS – Yusof Ishak Institute, whose research focus is on Indonesian politics, civil-military relations, and ethnic/identity politics. He is also a freelance journalist.
INTRODUCTION
The second amendment to Papua’s Special Autonomy Law was passed by the Indonesian Parliament on 15 July 2021 and signed into law by President Joko Widodo a week later.[1] The deliberation process took only seven months, a relatively short period for the creation of a law in Indonesia.[2] The second amendment changes several provisions of Law no. 21/2001, which was the basis for granting special autonomy in Papua. The first amendment was passed in 2008 (Law no. 38), and was for the formation of Papua Barat province.
The revised law was met with various reactions in Papua.[3] Papuan People’s Assembly (MRP) and the Papuan People’s Representative Council (DPRP),[4] voiced their objection and argued that the Papuan people, represented by the MRP and DPRP should have been consulted first. Many of the provisions of Law no. 21/2001 had in fact not yet been implemented.[5]
In addition, article 77 of Law No. 21/2001 states that any revision to the law must be conducted in consultation with the Papuan people represented by the Papuan People’s Assembly (MRP) and the provincial parliament (DPRP). This had been ignored by the parliament (DPR) and the national government. The two organizations have subsequently filed a lawsuit with the Constitutional Court and are demanding that the revision be stopped.[6]
Opposition to the revision also came from Papuan civil society groups. An organization calling itself Petisi Rakyat Papua (Papua People’s Petition or PRP) claims that it has collected 714,000 signatures opposing the special autonomy law,[7] and that it has the support of 112 Papuan civil society organizations.[8] The PRP expressly demands self-determination for West Papua.
The revising of the law without consultation with Papuan representatives was also condemned by several international CSOs.[9] They highlight that the move has finally strengthened the central government. In addition, they also condemn the arrests, detention and torture of protesters opposing this law.[10]
Academics and experts in Indonesia also warn of dire consequences if revisions were carried out without consultation and in-depth discussions with the legitimate representatives of the Papuan people. Conflicts in the already fragile region were bound to increase.[11]
Despite the opposition, Jakarta insisted on passing the law unilaterally, proposing two articles concerning Special Autonomy funds and local government proliferation (pemekaran). The House of Representatives proposed the revision of 16 articles and the addition of two new articles. In total, 20 amendments were made to the 79 articles of Law no. 21/2001.
This Perspective discusses the changes to Papua’s Special Autonomy Law and their consequences. The amendment reflects the recentralization efforts by Jakarta, and transfers to it more power over budget and regional proliferation processes.
IMPORTANT PROVISIONS IN THE SPECIAL AUTONOMY LAW
After the collapse of the New Order, Papua was in turmoil. In 1999, 100 Papuan leaders met with President BJ Habibie and demanded the right to self-determination. Similar demands were repeated in 2000 at the Papuan People’s Congress that rejected the results of the 1969 Act of Free Choice. Jakarta responded by granting special autonomy to Papua in 2001. Under the Special Autonomy Law, the provincial government has autonomy in all matters except defense, international relations, fiscal and monetary policy, religion, law and justice.
Papua’s Special Autonomy Law (Law no.21/2001) contains several provisions that acknowledge the political rights of indigenous Papuans. It also aims to improve welfare and human rights situations and act as a peace mechanism. Among the most important provisions is the formation of the Papuan People’s Assembly (MRP), as representative of indigenous Papuans. Its members are appointed by the governors and its composition reflects the balance between women, traditional leaders and religious clerics. The law also requires that governors and deputy governors be indigenous Papuans.
Most Papuan provincial parliamentary members are elected while the rest are appointed. The appointed members are indigenous Papuans and account for 25% of elected members.[12] The law acknowledges the right of Papuans to form local political parties by prioritizing the membership of indigenous Papuans.
Provincial governments have the right to create special bylaws (Peraturan Daerah Khusus or Perdasus) and establish a customary judicial institution (Peradilan Adat). The law also authorizes the establishment of a Truth and Reconciliation Commission (TRC), and requires that the appointment of the heads of the regional police and of state prosecutors (kejaksaan) by the central government must have the approval of the governors.[13]
Parts of the law that attract the most attention are those concerning finance. Papua governments[14] receive special autonomy funds (Dana Otonomi Khusus) amounting to 2% of the total national General Purpose Fund (DAU). They are also entitled to 80% of revenues from mining, forest and fishery products and 70% of revenues from oil and gas products. These provisions are in effect until 2026, after which the provincial government is to receive only 50% of these revenues.
Some provisions of the law have not been implemented because either necessary regulations have not been issued by the central government or special bylaws made by local governments have not been ratified by it.[15]
The Truth and Reconciliation Commission (TRC), as mandated by Article 46 paragraph 3 of this law, is a prime victim of the absence of a central government regulation. The article states that the TRC is to be formed through presidential decree. So far, no such decree has been issued.
Ratification of local bylaws has also become a problem. Hindrance to the formation of local political parties has been the best example of this. On 9 September 2016, the Papua Provincial Government and the Papuan People’s Representative Council passed a Special Regional Regulation (Perdasus) on local political parties and on the political recruitment of indigenous Papuans. However, the Ministry of Home Affairs has never ratified that regulation.
Dissatisfaction with the law does not only come from the Papuan side. The central government also has its own complaints. Finance Minister Sri Mulyani, for example, told parliament that the remaining budget for special autonomy funds and additional infrastructure funds per year in the provinces of Papua and West Papua was very large.[16] She stated that this was due to poor governance and poor fund usage by local governments.
Sri Mulyani’s opinion was supported by the Supreme Audit Agency (BPK) which stated that the Special Autonomy funds were not managed properly, thus potentially causing irregularities. The BPK assessment was very general and did not mention specific cases.[17] Meanwhile, the Center for Financial Transaction Reports and Analysis (PPATK) more explicitly stated that there were allegations of misappropriation of Special Autonomy funds. This institution points to local government officials, community organizations, and local government partners as the culprits. There were 80 cases involving 53 individuals investigated by PPPATK.[18]
Despite suspicions of misappropriation of funds, Indonesia’s anti-corruption commission (KPK) has been curiously silent about corruption in Papua. The commission, famous for its sting operations against corrupt regional leaders, has never been known to make arrests in this region.[19]
AMENDING THE SPECIAL AUTONOMY LAW
President Jokowi’s administration had proposed a limited revision to the Papua Special Autonomy Law, amending only three articles, namely Article 1 on definitions of terms used in this law; Article 34 concerning the Special Autonomy Fund, and Article 76 concerning proliferation of province and regency level administration. The Indonesian Parliament, however, proposed amendments to 19 articles.
Among the provisions proposed by the parliament was one on abolishing local political parties (Article 28 paragraphs 1 and 2 of Law no. 21/2001). Parliament and the government have agreed to scrap the provision that allows Papuans to form local political parties. This provision has never been implemented although the Papuan government and parliament had passed special bylaws to facilitate that. In 2020, the Indonesian Constitutional Court decided that the establishment of local political parties in Papua was against the Constitution and certain laws concerning national political parties. The court decision provided the legal basis for scrapping the provision. Some observers have, however, long noted that local political parties can offer a way for resolving conflicts in Papua.[20]
The new law also removes the provision that national political parties must consult the Papuan People’s Assembly (MRP) in political selection and recruitment in Papua. This provision further strips the authority of MRP.
The two articles proposed by the government—the extension of special autonomy funds and provincial and district proliferation (pemekaran)—deserve to be looked at in greater detail.
Special Autonomy Fund
The special autonomy fund is the most prominent part of this law because of the amount of money poured into Papua. The fund aims to improve the welfare of the Papuan people, especially in the fields of health and education.[21] It amounts to 2% of the General Allocation Fund (GAF) transferred each year to Papua and Papua Barat provinces. Besides GAF, the two provinces of West Papua also receive other kinds of transfers, such as the Special Allocation Fund (SAF) which is used to speed up infrastructure development, tax shares, and non-tax shares.[22] From 2002-2020, Jakarta had transferred approximately IDR 92.7 trillion (US$6.4 billion) to Papua Province. Another IDR 41.8 trillion (US$2,9 billion) was transferred to Papua Barat province.
Jakarta claims that the special autonomy fund has succeeded in improving the living conditions of the Papuan people, although data show that poverty and inequality rates are still high. For example, the Human Development Index (HDI) increased quite significantly, from 54.45 in 2010 to 60.84 in 2019 in Papua Province (an increase of 6.4) and from 59.6 in 2010 to 64.7 in 2019 in Papua Barat province (an increase of 4.9). These average increases are way better compared to the national average for the same period, which is 0.53 per year. The number of poor people in Papua has also decreased from 50% in 1999 to 27.74% for Papua and 23.01% for West Papua in 2019.[23]
The Special Autonomy Fund also provides local governments with the capability to improve their human resources. Many young Papuans are now able to study at universities outside Papua under scholarship from their local government.[24]
It should be noted, however, that these statistics do not disclose inequality among people who live in West Papua. HDI may be high in urban areas but it is very low in rural areas, especially in mountainous areas.[25] Urban-rural inequality also reflects the difference between migrants and indigenous Papuans. Migrants have become the majority in urban areas while rural areas are dominated by indigenous Papuans. This urban-rural gap also occurs among indigenous Papuans. Those who live in urban areas have relatively better welfare indicators than those in rural areas.
Under the new law, the government agrees to extend the special autonomy fund to 2041 and increase it to 2.25% of the general allocation fund per year. However, unlike in the previous period during which the Papuan provinces directly received 2% of the GAF, under the new system, Papua will receive only 1 percent of the GAF while the remaining 1.25% is given based on local government performance. The central government argues that this system will increase the accountability of local governments. However, the provision for giving 1.25% based on performance also means a tightening of central government control over local government in Papua.[26]
Local Government Proliferation (Pemekaran)
Another hot button issue in the Special Autonomy Law is the proliferation of regional government (pemekaran). The issue has divided indigenous Papuans. It plays directly to identity politics among the indigenous Papuans (OAP) who are divided into various tribes, speaking different languages, living in each customary and ancestral lands, and even adopting different faiths. In addition, several tribes are traditional rivals involved in continuous conflicts.
The territory of Papua is divided into seven customary/cultural areas, namely Mamta (Mamberamo-Tami or now known as the Tabi area), Saereri, Ha Anim, La Pago, Mee Pago (the five are in the Papua region) and Bomberai and Domberai in Papua Barat region. The basis for the division of these customary territories is the ethno-linguistic grouping among these tribes. Within each customary territory, there are dozens of independent tribes. Such complex anthropological conditions make it difficult to establish a common identity for the Papuans. At the same time, this makes it easier to divide the territory into units that have been traditionally controlled by indigenous tribes.
Those who are against proliferation accuse Jakarta of exploiting these divisions. They are suspicious that Jakarta is using a “divide and rule’ tactic.[27] The government, however, argues that smaller units of government will ensure better service to the community, and proliferation will create a more effective, responsive, and accountable government.[28]
Law no. 21/2001 only has one clause regarding local government proliferation in Papua.[29] In the new law, there are now five such clauses. In short, the new law will make proliferation easier. While in other parts of Indonesia, local government proliferation was carried out through meticulous administrative preparations that require a long transition, in Papua the process of administrative preparations is omitted.[30] Jakarta wants to accelerate the proliferation process due to volatile security situations. Prolonged debates and controversies will destabilize the region, it argues. The same reason is used in eliminating the requirement that proliferation be carried out with the approval of DPRP and MRP.
Local government proliferation needs manpower. Papua has not enough skilled people to run the newly created local government. There is also concern that the educated and the professional class of indigenous Papuans such as medical doctors, teachers, engineers, etc. will eventually take bureaucratic jobs and abandon their professions.[31] But even that will not meet the needs for manpower of the new administrative regions in Papua. The shortfall may then be filled by bureaucrats from other parts of Indonesia,[32] worsening the immigration problem and causing more social conflicts.
CONCLUSION
Jakarta’s unilateral second amendment to Papua’s Special Autonomy Law shows a desire to recentralize and strengthen the central government’s control over this region. This was conducted in two ways. The first is through the special autonomy funds. In the amendment, the proportion of special autonomy funds from the General Allocation Fund was increased to 2.25%. However, the use of these funds will not be fully carried out by the local government. Instead, 1.25% of the funds will be disbursed based on the job performance of the local government, with the central government having control over the sum.
The second is through reducing the power of local legislatures especially the People’s Representative Council (DPRP) and the Papuan People’s Assembly (MRP). Under the new law, both the DPRP and the MRP no longer have the power to approve regional proliferation.
Whether this recentralization will succeed in accelerating economic development and providing public services to the community remains to be seen. The same goes for whether recentralization will reduce conflict in Papua? This is still a big question mark, and should conflicts increase instead, then economic development and the provision of public services will be detrimentally affected. The original autonomy law was intended as a conflict resolution; the amendment shows that intention diminishing.
ISEAS Perspective 2021/123, 21 September 2021
ENDNOTES
[1] The formal name of the law is Law number no. 2/2021 concerning the Second Amendment to Law no. 21/2001 concerning Special Autonomy for the Province of Papua (Undang-undang No. 2/2021 tentang Perubahan Kedua atas Undang-Undang Nomor 21 Tahun 2001 tentang Otonomi Khusus bagi Provinsi Papua).
[2] Deliberations on amendments to this law were conducted mostly behind closed doors apparently so as not to attract attention. The final draft of this law was issued only at the plenary session of the DPR.
[3] See, “Sikap Elite Politik Papua terhadap Revisi UU Otsus Terbelah,” (Papuan Political Elites Divided over Revision of Special Autonomy Law) https://nasional.kompas.com/read/2021/07/16/09480571/selang-tujuh-bulan-ruu-otsus-papua-akhirnya-disahkan?page=all
[4] The mention of MRP and DPRP in this article refers to the same institutions that exist both in the Papua and Papua Barat Provinces.
[5] Law no. 21/2001 requires establishment of a truth and reconciliation commission as well as a human rights court, for instance. These had not been implemented because the Central Government had not issued any Governmental Regulations (Peraturan Pemerintah) in facilitation of this.
[8] In its website, PRP argues that “Papua versus Indonesia political conflicts, and all problems that comes out of it, cannot be resolved with Special Autonomy volume I, nor will it be resolved by extending Special Autonomy volume II. So, the best way that is safe, peaceful and democratic is to return it (the autonomy) to the people of West Papua so they will be able to determine their own destiny.”
[9] See, for example, Tapol’s and Civicus’ statement regarding this matter, https://www.tapol.org/news/unilateral-renewal-special-autonomy-and-arbitrary-arrest-protesters-west-papua
[10] On 14 July 2021, the police detained 23 students and activists in Jayapura, Papua Province. Four protesters were injured. Protests also erupted on 15 July in Kaimana and Manokwari, West Papua Province. As many as 50 protesters were detained when demonstrating in front of the national parliament (DPR-RI) on 15 July, at the same time as the plenary meeting was taking place to ratify this law.
[12] For example, the current parliament in Papua Province has 69 members, of which 55 members were elected in the election and 14 (25% of the 55 members) were appointed to represent indigenous Papuans. These appointed members are determined by the governor through Special Regional Bylaws (Peraturan Daerah Khusus).
[13] In Indonesia, the authority to appoint regional police chiefs and prosecutors rests with the central government.
[14] In 2003, the government of Papua province was split with the formation of the province of Papua Barat. The Law no. 21/2001 was then amended into law no. 35/2008 to accommodate the creation of the new province. So now, the Papuan government covers the provinces of Papua and Papua Barat.
[15] The head of the MRP, Timotius Murib, said that of the 24 powers mandated by the Special Autonomy Law to Papuans, only four have been implemented. https://www.republika.id/posts/17739/mrp-gugat-revisi-uu-otsus
[16] The average remaining Special Autonomy funds for Papua Province was IDR 528.6 billion (US$36.8 million) per year and for Papua Barat Province, this had amounted to IDR 257.2 billion (US$ 17.9 million) per year for the last seven years (2013-2019). Meanwhile, over the same period, the remaining additional infrastructure fund (Dana Tambahan Infrastruktur or DTI) for Papua Province was IDR 389 billion (US$ 27.1 million) per year and for Papua Barat, it was IDR 109.1 billion (US$7.6 million) per year. https://www.cnnindonesia.com/ekonomi/20210126153421-532-598589/sisa-dana-otsus-di-papua-rp5286-m-per-tahun-sejak-2013
[17] BPK assessment can be found here: https://www.bpk.go.id/assets/files/storage/2021/01/file_storage_1611741659.pdf
[19] In February 2019, KPK officers conducting an investigation into allegations of bribes offered by the Papuan governor to Papuan parliamentary members, were arrested by Papuan officials and beaten up. https://www.cnnindonesia.com/nasional/20190208075242-12-367372/adu-kuat-kpk-dan-lukas-enembe-cs-di-tanah-papua
[20] See, IPAC, Renewing, Revising, Rejecting Special Autonomy in Papua, Report No. 64, 30 July 2020. There is scholarly debate about whether decentralization and democratization in areas hit by secessionism will mitigate or fuel separatism. It seems that democratization (with local parties) and decentralization, which ultimately assigns government responsibility to separatist leaders, will mitigate separatism. For the debate on Aceh and Papua, see Marcus Meitzner, “Local Elections and Autonomy in Papua and Aceh: Mitigating or Fueling Secessionism?” Indonesia, No. 84 (Oct., 2007), pp. 1-39.
[21] According to the law, 30% of special autonomy funds must be allocated to education and 15% to health.
[22] In addition to the 2% General Allocation Fund, the two provinces in Papua also receive funds from tax revenue sharing; non-oil and gas profit sharing; oil and gas profit sharing of 70% of the proceeds; and additional special autonomy funds for infrastructure development.
[23] The percentage of poor people in Indonesia in 2019 was 9.22% of the total population. In 1999, the number of poor people was 23.43%. In two decades, Indonesia succeeded in reducing overall poverty by 14.21%, The poverty rate in Papua is three times higher than the national one.
[24] Most of these students are studying under scholarship provided by their regency and living in housing provided by their local government. Ironically, just like the Dutch-educated Indonesian nationalists in the early 20th century, Papuan nationalism is growing under the Indonesian educational system.
[25] Bobby Anderson, Papua’s Insecurity: State Failure in Indonesia Periphery, Washington, D.C.: East West Center, Policy Studies No. 73 (2015).
[26] Academics from Gadjah Mada University, Yogyakarta, Dr. Purwo Santoso, highlights that the provision for granting 1.25% of special autonomy funds based on local government’s job performance means greater control by the central government. This also means reducing the autonomy of the Papuan government. https://nasional.kompas.com/read/2016/09/01/15142021/read-adverd.html?page=all
[27] There is also concern that regional proliferation in Papua will affect the demographic balance between indigenous Papuans and migrants. Proliferation will create a new government administration in which immigrants are the majority. This opinion has been expressed by indigenous Papuans such as Nioluen Kotouki, a member of Commission I of the Indonesian Parliament, and a researcher from LIPI, Adriana Elisabeth. See, https://tirto.id/pemekaran-papua-dalam-uu-otsus-baru-berpotensi-mengancam-oap-ghTa
[28] This was stated by Jaleswari Pramodhawardani, Deputy V of the Presidential Chief of Staff, in her written statement as quoted by Tirto.id. https://tirto.id/pemekaran-papua-dalam-uu-otsus-baru-berpotensi-mengancam-oap-ghTa
[29] Law 21/2001 says, “The division of Papua Province into provinces is carried out with the approval of the MRP and the DPRP after seriously paying attention to socio-cultural unity, readiness of human resources and economic capacity and future developments (article 76).”
[30] Back in April, the Interior Minister, Tito Karnavian told the press that the central government plans to divide Papua into six provinces, namely Southwest Papua, West Papua, Central Papua, Central Mountains, South Papua, and Papua Tabi Saireri. Tito argued that the proliferation would accelerate development and improve public services. He also explained that the demand for provincial proliferation was very high but could not be implemented because of opposition from the Papuan People’s Representative Council (DPRP) and the Papuan People’s Assembly (MRP). Therefore, in the revision of the Special Autonomy Law, the requirement for approval from the DPRP and the MRP was removed. See, https://www.cnnindonesia.com/nasional/20210408171759-20-627596/papua-ditarget-mekar-jadi-6-provinsi-perdebatan-masih-alot
[31] Interview with Timotius Murib, Chairman of Papua’s People Council (MRP), 15 April 2021 in Jayapura.
[32] See, Adriana Elisabeth, fn. 27.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
Southeast Asia Climate Outlook: 2021 Survey Report
The Southeast Asia Climate Outlook: 2021 Survey Report marks the second iteration of the Southeast Asia Climate Outlook Survey, which was conducted from 11 June to 2 August 2021. Designed to gather insights on the perspectives of Southeast Asian citizens towards a wide variety of climate change issues, the online survey covered topics including climate change impacts, urban mitigation and adaptation, low-carbon transitions and partnership on climate action. It drew a total of 610 responses from citizens of all 10 ASEAN states, and its findings provide a general sense of the prevailing views of Southeast Asian citizens towards climate change issues.
Southeast Asia Climate Outlook: 2020 Survey Report
The Southeast Asia Climate Outlook: 2020 Survey Report – ISEAS – Yusof Ishak Institute conducted its first Southeast Asia Climate Outlook Survey from 3 August 2020 to 18 September 2020. Designed to provide insights on climate change perspectives among Southeast Asian citizens, the online survey covered topics such as climate change impacts, mitigation, adaptation, the transition to low-carbon economies and partnership on climate action. It drew a total of 502 respondents from all ten ASEAN member states, and its findings serve as a barometer of general views and attitudes of Southeast Asian citizens towards climate change issues.
2021/122 “The Ambivalence of Heavy-Handed Debt Collection in Vietnam” by Nicolas Lainez, Bui Thi Thu Doai, Trinh Phan Khanh, Le To Linh, To Thu Phuong and Emmanuel Pannier
EXECUTIVE SUMMARY
- Consumer finance is a thriving sector that has been growing at an annual pace of 20 percent in Vietnam.
- Policy-makers and financial players promote consumer finance as an antidote to black credit gangs or usurious practices. However, banks and financial companies use controversial collection practices, including threatening borrowers’ relatives, friends and employers who are not legally liable for repaying the debt.
- Some financial companies such as FE Credit appear to go beyond conventional collection practices by hiring external collectors with ties to black credit gangs that harass borrowers and their personal connections.
- While these controversial collection practices support consumer finance by limiting non-performing loans in the banking system, they create discontent and public trust erosion in consumer finance.
- There is ambivalence among formal lenders when they employ extortionary collection practices that they officially denounce, which is characteristic of transitional countries.
* Nicolas Lainez is Visiting Fellow at ISEAS – Yusof Ishak Institute. Trinh Phan Khanh lives in Hanoi and is a recent political science graduate from Leiden University, specializing in international relations. Bui Thi Thu Doai lives in Hanoi and is studying towards a BA in Development and Economics at the London School of Economics. Tô Thu Phuong lives in Hanoi and holds a Bachelor in Human Rights and Political Science from Columbia University and Sciences-Po Paris. Le To Linh lives in West Virginia and is studying International Studies at Hollins University. Emmanuel Pannier is a Research Fellow at the French National Research Institute for Sustainable Development (IRD).
INTRODUCTION
Vietnam is experiencing a consumer finance boom. This recent development raises an interesting paradox. On the one hand, state and financial actors promote consumer finance as a tool to consolidate financial institutions, depersonalize credit relations, and eradicate an ‘archaic’ yet persistent informal sector typified by ‘black credit’ gangs and personalized credit relations.[1] On the other hand, banks and financial companies (fincos) harass borrowers’ social connections who are not legally responsible for repaying their debt. Moreover, fincos may hire debt collectors connected to black credit gangs to collect bad debt using heavy-hand tactics. This paradox reveals an ambivalence in the consumer finance sector, a double standard of formal lenders when they employ collection practices that they themselves denounce as informal and coercive when such methods are similarly applied by moneylenders.[2]
The implementation of these practices in the face of policy discourse and legal efforts to eliminate them both supports and subverts consumer finance development. While they allow banks and fincos to comply with non-performing-loan (NPL) regulations and limit credit risk, they also cause discontent and erode public trust in consumer finance.
Data for this article comes from in-depth interviews conducted in-person and online with 36 informants from Hanoi and Ho Chi Minh City. The convenience sample comprised 14 bankers working for public banks, joint-stock banks and fincos, and 22 borrowers who took consumer loans. Among these borrowers, 13 took cash loans and instalment plans from FE Credit, the leading and most controversial financial company in Vietnam.
THE BLURRING OF FORMAL LENDING AND INFORMAL PRACTICES
The harassment of borrowers’ personal networks and the use of strong-arm collection practices by formal fincos such as FE Credit have been causing public concern in Vietnam for years.[3] This anxiety echoes a deeper worry about informal ‘black credit’ gangs being involved in ‘loan sharking’ activities. In the past decade, these gangs have proliferated to fill an unmet demand for flexible consumer loans, which formal lenders seek to address as well. Policy-makers, developers and financial players make a clear distinction between informal and formal lending. They describe moneylending as an outdated subsistence economy based on personalized, unregulated and coercive credit relations. This ‘backward’ credit system should be replaced with an optimized market system based on depersonalized, regulated and sustainable credit relations.[4] The controversy around black credit gangs originates in their high-interest rates and the use of strong-arm recovery methods involving borrowers and their close relatives and associates. Our empirical evidence and hundreds of news clips, YouTube videos and Facebook groups show that formal lenders are known to recover bad debt in a seemingly similar manner.
When a client misses a payment, in-house collection departments from banks and fincos start by sending reminders and notices. If the client ignores the messages, collectors contact borrowers’ referees to gather information about their motive for being late and incite repayment. Petrolimex Group, a public bank that provides secured loans to low-risk clients, sends reminders five days before and after the payment date, investigates the client through phone and home visits up to ten days after the payment date, and from day 11 onwards, requires the late client to sign a commitment form. According to a senior officer from Petrolimex, at this stage, “If the client still couldn’t come through, we will take more serious actions, such as going to the client’s workplace or calling their family and relatives to remind them of the debt if the client refuses to cooperate”.
Fincos proceed in the same way. However, they may also hire aggressive external collectors. VPBank’s consumer finance branch, FE Credit, leads the consumer finance market. It has a database of 14 million customers and a consumer debt market share of 55 per cent. It applies similar collection practices as banks; it escalates harassment and threats against late payers during the first 60 days, calling up to 30 times and sending dozens of text messages a day. After 60 days, the file is passed to the litigation service which, depending on the profit to be made, will sue the borrower or commission or sell the bad debt to a third party. Often organized by black credit gangs, external collectors use non-physical violence to retrieve bad debt. Along recovery stages, both in-house and external collectors pressure borrowers’ personal networks. A typical early call or text message says, “this person hasn’t paid, we urge his relatives to remind him”. Subsequent messages become rude, insulting and threatening. Relatives and friends from sampled late payers received extortionary messages saying, “if you don’t pay, I will come to your house to kill you”, “we will cut the heads, arms, legs of your children out in the streets”. They could not always determine if these threats come from in-house or external collectors.
Collection practices also involve defamation campaigns on social media carried out by external collectors. Late payers may find manipulated photos of themselves wearing a prison uniform with messages such as “this is a debtor who refuses to pay up” circulating on their Facebook and Zalo pages. For instance, Duc took a VND35 million cash loan from FE Credit to open a restaurant that went bankrupt because of Covid-19 lockdowns. After missing a payment for five days, FE Credit sent him messages accusing him of ‘fraudulent crimes and appropriation of property’ and threats of “a market-hammer nature, that if I read them out loud, it would be very trembling to hear”, as mentioned by Duc. The most devastating action was the circulation of manipulated pictures of his sister on an altar of the dead and his wife dressed as a prostitute on his Facebook and Zalo pages.
Harassment has devastating effects on borrowers’ associates. They often carry messages asking them to repay the debt. Ngân, a woman working in a hospital, contracted TB and missed payment for a cash loan from FE Credit. After harassing her son, “they told me that if I was unable to pay, I needed to tell my family to do so on my behalf”. Her son agreed to repay two instalments before running out of cash.
Collectors can also propose new lines of credit to late payers to settle their arrears. Informants have reported being offered loans from FE Credit’s in-house collectors and external collectors in collaboration with small loan companies and pawnshops.
CONTROVERSIAL COLLECTION SUPPORTS CONSUMER FINANCE
Banks and fincos appear to operate at any cost and by any means to address NPLs. In 2008, in the aftermath of the global financial crisis, economic growth and consumption crashed, the economy experienced double-digit inflation, and a property bubble burst, leaving Vietnamese banks with high NPL ratios. Between 2011 and 2015, the State Bank enforced Decision 254/QD/TTG to restructure the financial system, stabilize credit institutions, and decrease NPL ratios. It also created the Vietnam Asset Management Company (VAMC) in 2013, a public company designed to purchase NPLs and keep their ratio below three percent in the banking system. In exchange, it provides credit institutions with special recapitalization bonds from the State Bank. After five years, banks must repurchase NPLs. All these efforts led to a significant drop in the general NPL ratio: 4,08 percent in 2012, 3.25 in 2014, 2.55 in 2016, 2.4 in 2018, and 1.6 in 2020.[5]
The economic fallout of the Covid-19 pandemic has revived concerns over NPLs.[6] Fitch-rated local banks reported a 45 percent surge in past-due loans in the first quarter of 2020 relative to the end of 2019.[7] The State Bank issued Circular 01/2020/TT-NHNN in March 2020, requiring credit institutions to restructure repayment periods, waive and reduce interest and fees, and maintain bad debt classification to support Covid-19-affected borrowers.[8] However, the NPL ratio continued to rise in the first nine months of 2020. Data from 17 listed commercial banks points to an increase of 30.7 percent in NPLs compared to the end of 2019, totaling VND97,280 billion and a ratio of 1.8 percent[9]. The NPL ratio is higher for FE Credit. This finco announced a pre-tax profit of VND3.713 trillion (US$161.43 million), down 16.3 per cent on-year, and an increase in NPL from 6 to 6.6 percent from December 2019 to December 2020.[10] In the first half of 2021, it jumped to 9.1 percent from 7.7 percent at the end of the first quarter.[11] As a result, the NPL ratio of VPBank rose to 3.46percent in March 2021, including bad debt from FE Credit.[12] To further support distressed borrowers, the State Bank issued Circular 03/2021/TT-NHNN in March 2021, which reinforces the provisions of Circular 1 and encourages lenders to make provisions for potentially unrecoverable loans within three years.[13] Circulars 01 and 03 keep NPL ratios below three percent. However, bad debt classifications can temporarily conceal a much higher NPL ratio in the banking system.[14]
In this constraining environment, banks and fincos use various methods to limit credit risk and NPLs. These include harassing borrowers’ associates, and for fincos, hiring controversial external collectors. Policy-makers and financial players associate these practices with informality, backwardness and danger if they are carried out by moneylenders. However, informality does not equate to illegality. Banks and fincos exploit legal loopholes and weak enforcement to recover bad debt. Debt collection was loosely regulated in Vietnam until recently. In the face of scandals and dozens of YouTube videos about FE Credit’s aggressive tactics that sparked public anger,[15] the State Bank issued Circular 18/2019/TT-NHNN in 2019. It provides that fincos can only call debtors and send reminders no more than five times a day from 7 am to 9 pm. In addition, collection activities must exclude any ‘organization or person who does not have debt repayment obligation’ to the finco, i.e., familial and social networks. However, our data show that banks and fincos continue to harass borrowers and their associates.
Another recent legislation, the Investment Law 61/2020/QH14, banned debt collection services since 1 January 2021. Fincos can no longer commission or sell bad debt to external collectors. To circumvent the law, collectors create other business models and conceal their activities. They enter into debt trading agreements with lenders, which do not involve ‘buying and selling bad debt’.[16] External collectors are useful to fincos because they are not bound by regulations such as Circular 18/2019/TT-NHNN and, therefore, enjoy more leeway to recover bad debt. Their debt recovery ratio is 90 percent compared to 50 percent for judgment enforcement agencies.[17] In short, external collectors do the dirty work that financial companies such as FE Credit cannot do due to regulations. Since debt collection is crucial to limit NPLs, the involvement of borrowers’ personal connections in credit transactions and heavy-handed collection support consumer finance development.
CONTROVERSIAL COLLECTION UNDERMINES CONSUMER FINANCE
These collection practices also foment discontent and erode public trust in consumer finance. Banks and fincos apply contract law to define legal obligations, responsibilities and binding rights with borrowers. They cannot hold borrowers’ associates legally accountable, but can nevertheless exert pressure by circumventing regulations and exploiting familistic practices.
Familism is a welfare regime whereby the family unit ensures its social reproduction, including dealing with its members’ problems.[18] Banks and fincos assume that the family as a whole strongly feels obliged to repay outstanding loans. This belief is well entrenched in the banking sector. A loan officer from Shinhan Finance, a small finco, explained that, “The way I see it, this is cultural. The Vietnamese family is usually pretty tight-knit, right? Vietnamese are affectionate, so if you cannot pay for the debt and your parents are harassed, you would feel really guilty, right? You would feel unfilial and at fault. Therefore, you would try to pay the debt as soon as possible so that your loved ones wouldn’t be harassed anymore. It all comes down to culture and tradition”.
Borrowers tend to have mixed feelings about the informal sharing of financial responsibilities. Families may play the lenders’ game and let individual loans become family issues; under heavy harassment, they devise strategies to repay arrears which might reinforce family ties. However, in-house and external collectors’ practices can also generate stress, conflict, anger and guilt among relatives, friends, acquaintances, colleagues and employers. When Quyen, a senior executive from PetroVietnam, was harassed by FE Credit, one of his employees took a VND50 million cash loan without informing him and missed payments. He first received gentle calls asking him to interfere. Seeing that he ignored requests, collectors made calls and sent text messages every few minutes all day long. Harassment ceased when he interfered. He complained that his colleagues in leadership positions face harassment for loans they are not aware of. He called for more regulations on debt collection as “the act of incessant texting to terrorize an individual is illegal. It does not comply with the law, which leads to terrorism”. Other informants have expressed unease at being caught in collection procedures unrelated to them.
Familistic and heavy-handed collection methods also erode borrowers’ moral obligation to repay debt and lenders’ legitimacy to claim repayment. Tuan, a delivery man from Hanoi, took two cash loans from FE Credit: a VND36 million and a VND50 million to repay the first loan and cover urgent expenses. After 15 months of steady repayment, he missed payments for the second loan due to income loss amid Covid-19 restrictions. FE Credit in-house and external collectors harassed him: “For me, there’s no problem with reminders but it’s different once collectors insult me and threaten to kill my child”. They also harassed three relatives: “They insulted them, forced them to tell me to repay. It had a lot of negative impact on my workplace and my family”. Eventually, he evaded his debt: “Presently, I don’t want to deal with it nor do I need to. Since they feel no responsibility to their customers, I don’t need to deal with it”. His anger at FE Credit took a more political turn. He joined Facebook groups where members share advice on how to deal with aggressive collection methods and went as far as to create a group focusing on “FE’s terrors and threats”.
There are hundreds of similar Facebook groups where disgruntled borrowers and their families pour out their grievances, provide mutual support, share tips on dealing with lenders and collectors, and even conspire to deceive and strike back against lenders. These groups focus on FE Credit and obscure lending apps operated by black credit gangs and unlicensed loan companies, known for being more aggressive than fincos such as FE Credit.[19] The harassment of borrowers’ associates and strong-arm collection methods undeniably undermine public trust in consumer finance and obfuscates the official narrative presenting consumer finance as the perfect antidote against black credit.
CONCLUSION
Consumer finance raises high expectations and heated controversy in Vietnam. It has the potential to include millions of unbanked consumers in credit markets, foster formalization and eliminate black credit. At the same time, controversial collection methods challenge official legitimizing narratives and breach public trust in consumer finance. This ambivalence is characteristic of transitional societies where formal rules and laws are underenforced and desynchronized with informal norms and practices.[20] Controversial collection practices may resist articulation in dominant discourses and persist as a way to ‘get things done’ to develop consumer finance and limit NPLs. They also highlight mechanisms of informal influence on the emergence, the shaping of credit institutions, and the production of adaptation and resilience strategies to manage rules aimed at fostering formalization.
From a policy perspective, the government should extend its capacities to regulate debt collection and support the nascent collection industry emerging from the black credit world. Law enforcement is key to succeed. It is also a challenge knowing that external collectors operate in a legally grey area. Regulations on debt collection should strike a balance between consumer finance expansion and consumer protection, as well as the moral and contractual obligation to repay a loan and respectful and sustainable financial practices. Amending regulations on debt collection might compel banks and fincos to review their practices and abide by the law. Yet these amendments may be slow in bringing tangible results, especially in the pandemic setting where loan delinquency and NPLs are on the rise. They could also slow consumer finance development and trigger adjustments of informal and/or unregulated collection practices around legal and political constraints. For legal amendments to succeed, policy-makers, financial players and consumers should launch a debate about the role of the family and familistic practices in supporting consumer finance and financialization in Vietnam. To what extent should the family be involved in private credit transactions? Should formal rules prevail over informal practices? Is Vietnam ready for prioritizing formality and the rule of law at the expense of informality and informal practices? If Vietnamese families are unhappy about becoming responsible for individual loans, why are they taking loans and playing the lenders’ game? From this perspective, legal amendments and public debate are equally important.
ISEAS Perspective 2021/122, 16 September 2021
ENDNOTES
[1] Nicolas Lainez, “Debunking the Informal Credit Myths: Is Credit Liberalization the Magic Solution to Loan Sharking?,” Perspective (Singapore: Institute of Southeast Asian Studies, 2019).
[2] On the concepts of ‘ambivalence’ and ‘informality’, see Alena V. Ledeneva, How Russia Really Works: The Informal Practices That Shaped Post-Soviet Politics and Business, Culture and Society after Socialism (Ithaca: Cornell University Press, 2006); Alena Ledeneva, Global Encyclopaedia of Informality, Volume 1: Towards Understanding of Social and Cultural Complexity. (London: UCL Press, 2018), https://www.jstor.org/stable/10.2307/j.ctt20krxh9.
[3] Nicolas Lainez, Phuong To Thu, and Doai Bui Thi Thu, “Lending Apps in Vietnam: Facebook Groups Offer Guidance, Comfort and Contention to Borrowers in Jeopardy,” Perspective (Singapore: ISEAS, May 28, 2021).
[4] T. Nhung and T. Khang, “‘Black-Credit’ Lenders Pose Serious Threat to Borrowers,” VietnamNet, May 28, 2021, https://vietnamnet.vn/en/feature/black-credit-lenders-pose-serious-threat-to-borrowers-740855.html; Thanh Nien News, “”Black Credit’ a Serious Danger amid Economic Slowdown,” Thanh Nien News, October 28, 2011; for a summary, see Lainez, “Debunking the Informal Credit Myths: Is Credit Liberalization the Magic Solution to Loan Sharking?”.
[5] Anh Thi Van Tran, Nhung Thi Nguyen, and Tu Thi Thanh Tran, “Dealing with Non-Performing Loans During the Bank Restructuring Process in Vietnam: Assessment Using the AHP and TOPSIS Methods,” Gadjah Mada International Journal of Business 22, no. 3 (December 24, 2020): 324, https://doi.org/10.22146/gamaijb.44453. The spectacular drop of NPLs should be interpreted with caution, though. Since VAMC is a warehousing structure to temporarily house NPLs before returning them to the bank’s balance sheets, the NPL ratio could be higher than official figures.
[6] Bao Saigon, “Pandemic Can Worsen Bad Debt Situation,” Vietstock.Vn, February 10, 2020, https://en.vietstock.vn/2020/10/pandemic-can-worsen-bad-debt-situation-37-421692.htm.
[7] FitchRatings, “Surging Bad Loans Aggravate Vietnam Banks’ Capital Challenges,” Fitch Ratings, May 6, 2020, https://www.fitchratings.com/research/banks/surging-bad-loans-aggravate-vietnam-banks-capital-challenges-06-05-2020.
[8] Moodys, “SBV Amends Measures to Support Recovery from COVID-19 Pandemic,” Moodys Analytics, May 8, 2020, https://www.moodysanalytics.com/regulatory-news/may-08-20-sbv-releases-measures-to-address-impact-of-covid-19-pandemic.
[9] “Bank Non-Performing Loans Ratio to Reach over 3% in 2021,” VietnamCredit.Com, November 11, 2020, https://vietnamcredit.com.vn/news/bank-non-performing-loans-ratio-to-reach-over-3-in-2021_14201.
[10] VIR, “FE Credit Experiences 16.3 per Cent Drop in Pre-Tax Profit as NPLs Increase in 2020,” Vietnam Investment Review, February 6, 2021, https://vir.com.vn/fe-credit-experiences-163-per-cent-drop-in-pre-tax-profit-as-npls-increase-in-2020-82526.html. By the end of first quarter of 2021, the NPL ratio for VPBank reached 3.46percent because it included the NPLs from FE Credit, see Intellasia, “Many Banks Early Make Provisions to Avoid Bad Debt Shocks,” May 29, 2021, https://www.intellasia.net/many-banks-early-make-provisions-to-avoid-bad-debt-shocks-913947.
[11] VIR, “Consumer Finance in Major Tie-up Tendency,” Vietnam Investment Review, August 19, 2021, https://vir.com.vn/consumer-finance-in-major-tie-up-tendency-86774.html.
[12] Intellasia, “Many Banks Early Make Provisions to Avoid Bad Debt Shocks.”
[13] Vietnam+, “Debt Classification Policy Extended to Aid Customers Impacted by Pandemic,” April 6, 2021, https://en.vietnamplus.vn/debt-classification-policy-extended-to-aid-customers-impacted-by-pandemic/199637.vnp.
[14] Viet Nam News, “SBV Considering Proposal for Developing Framework for Tackling NPLs,” Viet Nam News, July 28, 2021, https://vietnamnews.vn/economy/998435/sbv-considering-proposal-for-developing-framework-for-tackling-npls.html.
[15] Countless videos about FE Credit’s controversial collection methods are available on YouTube: https://www.youtube.com/results?search_query=fe+credit.
[16] Thi Hoa Pham, “Concerns over Prohibition against Debt Collection Service,” Lexology, August 31, 2020, https://www.lexology.com/library/detail.aspx?g=461beaeb-451d-4db6-89ff-486e7bd3d9d1.
[17] Ibid.
[18] Nicolas Lainez, “Par-delà la traite des femmes vietnamiennes en Asie du Sud-Est. Anthropologie économique des carrières intimes” (PhD dissertation in Anthropology, Paris, École des hautes études en sciences sociales, 2015), https://halshs.archives-ouvertes.fr/tel-01183507/document; Magali Barbieri and Danièle Bélanger, eds., Reconfiguring Families in Contemporary Vietnam (Stanford: Stanford University Press, 2009).
[19] Lainez, To Thu, and Bui Thi Thu, “Lending Apps in Vietnam: Facebook Groups Offer Guidance, Comfort and Contention to Borrowers in Jeopardy.”
[20] see Ledeneva, How Russia Really Works; Ledeneva, Global Encyclopaedia of Informality, Volume 1.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |